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How to hit the heights

Simple cost-effective data solutions are now available to help IFAs serve the HNW market.

This year is a crucial period for IFAs as they come to terms with depolarisation and the increasingly complex regulatory landscape.

Firms will need to concentrate their efforts on a customer-focused approach, esp- ecially in courting the custom of high-net-worth individuals.

Service will be the deciding factor in success and the quality and timeliness of client reporting will take on added importance.

IFAs must overcome the misconception that a conflict exists between producing reports quickly and efficiently and achieving the level of personalisation that clients will come to demand.

IFAs are operating in an uncertain climate, with speculation continuing on how new regulation will affect the distribution strength of IFAs in the long term. The pre-emptive migration towards networks has probably abated for a while but there remains a sense of loitering unease -a calm before the storm.

IFAs can emerge triumphant but the sector is likely to change considerably. Firms operating in the mass market may find the multi-tied route provides the most viable solution but there will remain a substantial and potentially highly profitable clientele for whom the advantage of truly impartial advice will remain as important as ever.

The important battleground is likely to be fought over the custom of HNWIs, whose increased market knowledge and financial literacy requires the truly whole-of-market advice only available from independent sources.

A recent survey by Tulip shows that 40 per cent of HNWIs use an IFA, citing the advantage of a strong personal relationship with a financial adviser. This makes IFAs the single biggest sector to advise HNWIs – a market which is growing globally. The Merrill Lynch/Cap Gemini World Wealth Report 2004 says in 2003, the number of individuals with $1m-plus in financial asset wealth grew to 7.7 million. In the UK, the number of HNWIs stands at 747,000, according to Datamonitor.

It is imperative for IFAs to be in this market to optimum effect. Distribution changes and lower up-front charges have caused revenues to fall and have added to problems from squeezed margins with increased PI premiums and compliance costs.

The Convention of Independent Financial Advisers estimates that compliance now takes up 40 per cent of an IFA’s time and this is forecast to rise to 50 per cent, with client activity falling to just 20 per cent.

The challenge for IFAs is to redress this balance in favour of client-facing activity. There is a certain irony in that IFAs remain popular with HNWIs for the level of personal service they provide but feel swamped by the burden of their daily roles. This is where client reporting and the technology which supports it are likely to assume increased importance.

The obvious advantage of making improvements in this area is the ready visibility to the client and delivery of the kind of service which the financially literate HNWI expects.

The competitive environment is changing, with some firms buying enhanced customer relationship management technology, often used with open architecture platforms and fund supermarkets to help with bespoke portfolio construction.

Ultimately, developments in open architecture and wrap products will lead to the kind of back-office processes which will allow IFAs to provide more holistic financial planning – meeting the requirements of the HNWI and sustaining firms’ revenue.

However, until these services can more effectively integrate existing contracts, they present some limitations.

It is imperative that IFAs act now to improve CRM to meet the expectations of their most valuable and demanding customer base.

Better client reporting is clearly a solution but there remains a common perception that this is a difficult area to improve. Automation brings speed and efficiency but it is often thought this compromises the flexibility to tailor the content and format of a report exactly to clients’ requirements, or, to put it another way, automation brings a form of regimentation.

However, this principle ultimately rests on a widespread misconception, stemming largely from the fact that financial services’ firms often invest less in IT when there is a bear market.

There is renewed investment among IFAs but this is not across the board, and many firms, especially SMEs, remain unaware of how the flexibility of automated systems has been revolutionised by changes in the ease of data aggregation.

Firms should not ignore the value of flexible new reporting technologies, with clients demanding greater personalisation of information and the nature of reporting also becoming more complex.

As the number of investment products grows, collating reports becomes increasingly challenging. It is essential to have IT systems which can communicate effectively with third-party providers and access the data to build reports.

One of the main aims must be to integrate data cost-effectively from different, often incompatible, databases. There is a tendency to believe the solution lies in a major initiative, whether it is enterprise application integration, a company-wide CRM system or some kind of web-based project. For many, this means high costs and lengthy timescales.

But there are simpler and more cost-effective options, such as an ETL (extract-translate-load) tool, which draws information from diverse systems, potentially in many different formats. It then outputs in whatever format is required by a system, without requiring time-consuming programming.

Integrated data can be achieved in a matter of hours and at reasonable cost.

Considering the simplicity of the solutions available and the need to preserve market share, ignorance of IT could prove highly damaging for the IFA sector.

Putting the client relationship at the centre must comprise the core strategy, especially when vying for the custom of HNWIs.

Achieving fast, personalised and cost-effective reporting should be the most important tactic to ensure that this strategy is achieved.

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