Historically, it has often been the accountant or the solicitor that is the “trusted adviser” but London-based Financial Relationships is aiming to put itself firmly at the centre of its clients’ financial affairs. It has set out to be a translator of financial information. Through forging partnerships with other professionals, it aims to provide a one-stop shop for clients, meaning they do not have to have to negotiate a disparate series of advisers to manage their different needs. As such, it believes it is moving towards a post- RDR model of financial advice.
The partnership was formed by Pat Peters, Alex Morris and Edward Dolan-Abrahams in July 2008, just two months before the Lehmans collapse. Individually, the three partners had amassed around 80 years of experience. Since then, the group has recruited four advisers and three support staff. It has built a series of professional connections and is on track to achieve RDR compliance well ahead of schedule.
Morris admits that starting in July 2008 presented some challenges but the partners took a prudent approach by overstating costs and understating revenues. It has a solid client base, with a core of City professionals and has recently hired Ed Wilby, a former investment banker, to build up the next generation of clients through – among other things – an increased focus on social media. The group believes it is there to help clients understand financial information. As such, it believes in “plain English” definitions and avoiding complex products.
As with most IFAs, clients have historically been recommended to Financial Relationships when they are going through a life change – marriage, having children, retirement, sale of a business or receiving an inheritance. The group wants to build on that to become the hub of a client’s financial affairs. It will give core financial planning advice and then introduce clients to trusted partners for mortgage advice, will and estate planning, accountancy and other services. This huband- spoke approach means clients can choose how much or how little advice they want. It also means the group may not necessarily transact on a client’s behalf but can tell them where to do so. In essence, advice becomes the product.
This approach means that professional connections are an increasingly important part of building the business. The group has recently partnered with currency broker World First to cross-refer clients providing a foreign exchange service to their clients and financial advice to World First’s clients. It already has an arrangement with Mortgage Select and Watermark Legal Services. At first, these relationships were informal but as clients got excellent service, the group has streamlined and formalised the introductory process to improve client service.
Social media is growing in importance for the group. At the moment, it is limited to newsletters and Twitter updates but there are plans to improve the website and use tools such as Facebook and LinkedIn. Hiring Wilby brings a dedicated person to this part of the group’s business development strategy. Morris says: “It is all about building the business around individuals who value our service.”
Dolan-Abrahams recognises that in building the future of the business, there will inevitably be some investment by the group. For example, it will foster relationships with clients in good jobs that are likely to be senior managers or running their own businesses in 10-15 years. However, he believes that post-RDR financial advice can no longer be for the mass market, adding: “Although we can and do undertake pro bono work, we cannot base our business model on that.”
’It is all about educating the client’
In preparation for the RDR, Financial Relationships has undergone a client segmentation exercise but has embraced as many existing clients as possible. Every piece of work is time-costed and fees are outlined upfront. The first meeting is free but the group then makes it clear that all further advice must be paid for.
Dolan-Abrahams says: “It is all about educating the client. Clients enjoy the absence of pressure to arrange a product to pay for our services. They can pay for the specified work or report and that’s all.”
The advantage of the RDR for Morris is that it stops “free” work. Clients have to pay for advice. He says: “We had an example recently of a client who wanted us to review three existing pension schemes with limited fund choice, where no commission could be generated. The fees to carry out the work were estimated at £1,800 and this was communicated clearly to the client. The client went away after initially saying no but then came back to us. Our charges are clearly stated in our documentation and will be shown on our new website so clients should not get any surprises.”
Morris adds: “Historically, the client has not understood what goes on behind the scenes but we have learned to explain our process more clearly and clients are becoming more educated. The quality of questions we are asked is now noticeably better. We have clients who ask for advice on cash Isas, National Sav-ings or credit cards. We are happy to give this advice but we explain the cost.”
Although Financial Relationships has been developed with the RDR in mind, Morris does see problems ahead in delivering certain types of advice. Specifically, he thinks not being able to pay for advice through the product could be a particular problem for protection. “We can’t charge less than £500 for this type of advice because of the work involved getting to know the client, so it may become difficult for clients to get advice in this area.” He therefore welcomes the FSA re-examination of this issue. He says that advising SMEs can be a source of advice for the lower paid.
Morris says the group aims to be as professional as possible, particularly through qualifications. He is aiming to have chartered status in 12-18 months and already has a long list of qualifications as do his partners. He thinks exams are essential to keep technical knowledge up to date but admits that he has never yet been asked about his qualifications by a client.
On the investment side, the group has built its proposition on a blend of styles. It puts a lot of emphasis on asset allocation and risk-rated portfolios to deliver quality advice at a competitive cost. Dolan-Abrahams says: “Costs are a big issue and the separation of advice and investment costs will further focus attention on this area. Vanguard’s arrival could really shake up the market and in three years, people won’t believe what some firms are charging today.”
While Financial Relationships is directly regulated by the FSA, the group also retains Tenet for the provision of compliance and research services. Quarterly GAP analysis ensures that they work towards achieving and maintaining the highest level of compliance and client service. Quay is the back-office provider. The group still has a number of things to decide on – it is reviewing its wrap provision, for example, and its risk assessment tools and expects to continue improving its client service in all areas.
Morris and his partners believe that a robust adviser model will be needed to cope with the demands of National Employment Savings Trust (Nest)which will create a huge increase in demand for advice. They also believe it presents a great opportunity for the advice industry to win trust and place themselves at the heart of their clients’ financial needs.
- The group was started in July 2008 with three partners and is now 10-strong
- It aims to provide a one-stop shop, forming the core of clients’ financial planning and referring to other trusted partners where necessary
- Social media will form an important part of building Financial Relationships’ next generation of clients
- All the partners place a strong emphasis on qualifications, believing they represent a good way to refresh knowledge
- Careful consideration of costs plays an important role in the group’s investment portfolios
- Number of RIs: 7
- Outsourced investment management: No
- Wrap provider: Under review but Cofunds and Transact
- Back-office provider: Quay
- Networks/nationals: Tenet
- Qualifications: Aiming to achieve chartered status within 18 months
- Number of clients: 3,358