What is a reasonable price for professional financial advice? This question has been brought into sharp focus now the Government has launched a review into how the interests of all consumers – not just the wealthy ones – can be better served by the financial advice sector.
The traditional advice model, where face-to-face meetings and comprehensive reviews are the norm, delivers high quality outcomes, but it comes at a price. Unfortunately, for many people unfamiliar with using such a model, the price advisers need to charge in order to make a living may not match what consumers think they should pay.
This became apparent recently when we surveyed 1,000 consumers earning more than £40,000 and asked them what amount they thought was reasonable to pay for advice. The majority – 63 per cent – said they would pay under £100 per hour, with a third saying less than £50 per hour. For many advisers, running a successful, traditional model business with such low hourly rates is untenable.
But the pension freedoms have prompted a need for advice among all sorts of people who have savings squirreled away in pension pots set up either by themselves or through various company schemes. Before April, many of these people would have easily slipped into having their pension savings switched into an annuity, choosing to take the advice of the provider of the pension savings plan.
For advisers who have decided to focus on those with significant wealth, the debate about whether it is cost-effective to offer advice to a broader spectrum of society is academic. But there are only so many wealthy clients to go around. With the Government keen to see access opened up, many forward-thinking advisers will be looking at how they can adopt a business model to fulfil the needs of all types of clients cost-effectively.
The good news for those looking at this broader opportunity is technology holds the key to unlocking the potential for profitable relationships, regardless of the value of assets.
Of course, technology alone is not enough. To develop a successful business model requires focus, drive and an investment in creating the right infrastructure. Surprisingly, this does not have to be as daunting as it sounds.
Many firms will already have management information in place that informs them about how profitable their existing business is and where that profit is coming from. A relatively small amount of time spent segmenting clients and reviewing how the business is servicing them can provide a springboard to developing ideas about how to provide cost-effective solutions to meeting those clients’ needs.
Having digital access to management information is something most advisers expect but today’s technology can provide so much more. Integrated systems can interact with product providers, manage complex compliance processes and communicate with clients via secure portals.
Such portals also enable advisers and clients to access their specific information securely at any time, without the need for expensive face-to-face meetings or even telephone contact. Such convenience means advisers are able to review how they price their advice models in order to meet the differing needs of clients, and depending on their requirements and financial situation.
Looking ahead, the adviser firms that have smart IT at the core of their infrastructures will be equipped with the tools not only to service clients with small saving pots but to compete with anything that the big banks and product providers can offer.
Nick Eatock is executive chairman at Intelliflo