Advisers are grappling with the “double-edged sword” of whether to offer advice to lower value clients and how they can do so profitably.
Much of the debate in the run-up to the RDR, and since it has been introduced, has focused on access to advice once charges are made explicit. Money Marketing spoke to a selection of advice firms, large and small, to find out whether poorer clients are being shunned by advisers.
Some firms, such as AWD Chase de Vere and Towry, have set minimum asset levels clients need to have in order to be able to receive advice. Other firms, including Tenet, Foster Denovo, St James’s Place and Positive Solutions do not set minimum asset levels, saying it is up to individual firms to develop their own business models.
AWD targets “mass affluent” clients with assets of between £50,000 and £375,000, and high net worth clients with assets of over £375,000. It is not taking on clients with below £50,000 to invest.
For existing clients with under £50,000, AWD offers a largely reactive telephone and email-based “primary” advice service. Clients using this service who want ongoing advice are charged 3 per cent for the initial advice and 1 per cent ongoing. For one-off advice clients are charged a hourly fee of £200 per hour, which is quoted as a fixed fee upfront.
Towry only takes on clients with investments of over £100,000, which is also the minimum clients need for discretionary investment management. Typical Towry clients have assets of between £300,000 and £500,000.
Foster Denovo has adopted a different approach, with three different service levels for clients including a “pay as you go” transactional service. The company is also looking to provide financial education in the workplace for corporate clients.
Tenet group distribution and development director Keith Richards says while the network does not impose minimum investment levels, he believes they may become more widely used by the industry in future.
Richards says: “It is certainly not the intention of advisers to turn their backs on mass market consumers, but the increasing cost pressures of regulation and risk are forcing the issue.”
Attain Wealth Management managing director Gordon Crothers says he has purposely not set a minimum level of client assets. He says: “It is a double-edged sword because it is difficult to deliver something that is cost-effective and fair to other clients that are paying a substantial fee for advice.”
Attain has around 30 active clients with assets below £100,000 and the service is geared around the use of platforms and passive funds. Face-to-face meetings are not provided and reports are produced annually rather than every six months.
Crothers says: “It is possible to deliver this service profitably, but the main thing is clients understand what to expect. That said, there is a finite level of smaller value clients that firms can take on in terms of the physical administration involved.”
Yellowtail Financial Planning managing director Dennis Hall says: “I am positive there is profitability in delivering mass market advice. Getting the funds to develop these things can be difficult, but technology is getting cheaper and people are getting more creative with advice webinars and client meetings via Skype. We need to do for advice what Hargreaves Lansdown has done for funds sale and commoditise it as much as possible.”
Some businesses are finding ways to make mass market advice work. Investor Profile delivers telephone and email-based chartered and certified financial planning advice, with costs ranging from £40 for drop-in “investment surgeries” to £2,500 for a full lifetime financial planning report.
Director Jaskarn Pawar says: “Progress is about finding ways to do things which previously have not been tried or thought possible. My view is high-cost advice is just as difficult, if not harder to deliver than low-cost advice, because you have to justify the value for money even more. Innovation, technology and the will to be different will make low-cost advice possible.”