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Do one-man band IFAs have a future?

peopleWhat happens if my adviser falls ill? It is a question that a prospective client may rarely ask, but one that seems perfectly valid for a one-person firm.

What if you go on holiday and I’ve got a financial emergency? Who am I meant to turn to? What if you want to shut up shop and there’s no-one to take over?

A report by CWC Research in 2015 called No Small Change argued that because of increasing research, administration, compliance, IT and other costs, advice firms of the future will need to achieve “critical mass”.

The minimum size of a post-RDR advice firm is likely to be between 10 and 15 members of staff, with at least five advisers and three paraplanners, the report concluded.

Trade body Apfa’s – now part of Pimfa – most recent statistics show that the average number of advisers in a firm is 4.55. This has remained stable since the RDR, but are things about to change, as consolidators snap up more firms and network giants like St James’s Place and Openwork continue to grow adviser numbers?

Money Marketing looks at the prospects ahead for the one-man or one-woman band advice firm.

The challenges

Few would doubt that being a sole trader IFA in the current climate is a tough job.

In an increasingly professionalised industry, smaller IFAs, particularly if they are, or want to become, chartered, will have to be organised enough to fit in exams and continuing professional development requirements around their client commitments.

Today’s sole advisers can obviously check emails and call or video conference clients even when they are on holiday, but the trade-off is cutting into the time that they spend unplugged from the office.

Automating other processes would help free up the time a one-person advice business would need. Many smaller firms are not known for being technologically savvy, however, with some key exceptions.

Ian McKenna: How small advice firms lead the way on technology

Core Financial sole adviser Trevor Whiting says it is the cost of regulation that looms largest for small firms, though. His combined FCA and Financial Services Compensation Scheme bill for this year was £9,600, up from £6,000 the previous year, he says.

He says: “It’s becoming a lot harder because the increase in fees we have as a business impacts so much more. It really matters to the individual smaller business when the FSCS levy is going through the roof and you’ve got professional indemnity too. Bigger businesses can spread that a bit more.”

He also notes that clients do raise the issue of succession planning.

He says: “There are issues about continuity. What happens is that some clients will say ‘I like what I’m getting with you, with an amazing service, you’re very responsive, but what happens when you die, or whatever?’ There’s no continuity plan in these smaller firms. They’re good for today, but what are they like for tomorrow?”

The FCA’s data from May shows that there are 2,427 one-adviser firms in England and Wales – more than any type of firm. However, the number of single advisers in one-person firms remains dwarfed by the 6,302 sitting in firms of between 2 and 5 advisers, the 5,618 in firms of between 6 and 50 advisers, and the 11,264 in firms with over 50 advisers.

Average retail investment revenue was also slightly lower in one-person firms than in any other kind of firm; £130,000 compared to £140,000 for firms with more than 50 advisers.

The opportunities

Acting on your own does give you the freedom to run your business exactly how you think it should be run, though. This is the case with Klonowski and Co sole adviser Francis Klonowski, who wanted to run a fee based practice back in the mid-90s, so left his IFA firm to go it alone.

It also suits personalities that like to set their own direction or prefer to concentrate on their own work rather than getting involved in team projects.

The FCA’s data on the size of advice firms

Klonowski, in his mid-60s, certainly isn’t looking to hang up his boots in a rush.

He says: “After 21 years, I may be a bit biased, but I think [the one-person firm] has got a solid future.

“I very much hope it’s going to be a long time before I’m finished. I have the energy, the stamina, hopefully the brain will keep me going long enough and the regulators will allow me to continue.

“You get clients saying ‘please don’t retire yet, we need you’, to the extent you feel almost as if, if you had plans to retire, you wouldn’t because you owe it to them.

“It does have its problems. Often the work does pile up. Just when you think you are getting on top you get another couple of enquiries in…. But because they know you as an individual they overlook those little failings and they are prepared to work with you.

“Is there a future [for one person firms]? Particularly in financial planning terms we are probably as strong as ever.”

Acting as a smaller outfit can also reduce the costs of doing business. You might not need to engage a discretionary fund manager or sophisticated back office systems or pay for large offices, for example.

Whiting says that because the firm can charge less than the often-quoted market standard of 3 per cent up front and 1 per cent ongoing – ongoing fees at his firm scale from 0.55 down to 0.25 per cent and the rest is time costed –  he actually has had trouble recruiting any more advisers because they stand to earn less.

He says: “Clients are increasingly fee conscious. We have thought about whether we should charge more money or be more commercial, but then you are fighting against a tide where the FCA is looking at ongoing fees from the value perspective.

“Clients get a really highly personalised service from a one-man band; that’s what they love about it.”

Having the time or resources to actively go out and generate new referrals can seem like a stretch when larger advice businesses often advertise ready made client banks and leads as an incentive to join.

But Klonowski says that this does not present too much of a challenge as satisfied clients provide a pipeline of introductions, with his website and awards entries also helping build his profile.

He says: “They come with the right sort of frequency. I never need to look too far for a new one.”

Counting the client outcomes

In the end, many advisers in both small and large firms are confident that client outcomes will remain king, and if a one-person firm, a network or a larger outfit suits particular client needs best, then that is the route an adviser should take.

ISJ Independent Financial Planning sole adviser Lena Patel was formerly with Old Mutual-owned network Intrinsic, but says the limited product choice was why she decided to set up on her own and go directly authorised.

“It was their fund or no fund,” she says. “The funds were quite expensive for the clients so didn’t really fit with what I wanted to do or suited to calling yourself independent.

“It is tough, but its good in terms of client outcomes.”

Openwork rivals SJP after adviser numbers increase

Networks themselves can run into difficultly, as advisers at the likes of now-defunct businesses Burns Anderson and Financial Limited have found.  Depending on the network, the cut it takes can leave advisers worse off financially than if they were a one-person outfit – provided they write enough business, of course.

It is also easier to target a niche as a one-person outfit, as Patel is attempting to do with high value divorce clients.

Patel outsources some report writing and uses Simplybiz for compliance services. She also uses a paraplanner.

She says: “Without that it is going to be tough. All your report writing, all your reviews, as one person, you can’t do it. The ability to hand off things you don’t like doing is invaluable for me.”

Expert view

roderic-rennison-grey-700px

I don’t take the absolutist view that if there’s a one-man band you can’t possibly contract with them. Ultimately people do business with people, and there are some incredibly talented one-person businesses. I’m not prescriptive: it’s not one-man bad, bigger good.

But it’s often not just one person. They may be the sole adviser, but there will be a locum arrangement to pass off if they fall ill, a paraplanner or a personal assistant. Often those paraplanners are CF30 authorised to give advice if they need to or are doing quite a lot of the routine stuff.

There is a place for a boutique intermediary, but often one-man or one-woman bands will get together with another to bulk up. I know some really good one-person IFAs but most of them are part of networks like Best Practice, which caters for quality one-person businesses.

If they’re well organised they are actively as opposed to passively collaborating with the likes of Threesixty, Simplybiz or Bankhall. Very good intermediaries have very good support.

Roderic Rennison is director at Rennison Consulting

 

 

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. I also think it depends on where you are, to start new as a single person firm now is costly, difficult and time consuming, there may also be the need to transact whatever comes along so needing a wide range of knowledge.
    As it becomes established it may well find it is drifting to one particular area, whether it be divorces like Lena Patel or retirement/investment planning. Once this happens life can become easier, with the support of a compliance network such as Simplybiz or Bankall the answers to any out of the ordinary (for that particular firm) can be easily sourced and the adviser can concentrate on own comfort zone.
    Once a client bank is established I see no reason why the single IFA cannot thrive.
    Succession planning is an issue and it may be that the client bank ends up with a larger firm as another single IFA may not have the resources to buy another client bank, but careful in advance planning should be able to resolve this.

    Like everything, starting new needs careful planning, risk assessment and cashflow planning, but hey isn’t that what an IFA does?

  2. I believe that SJP Advisers are mostly ‘one-man bands’. I don’t think it really matters how many ‘bands’ you are. I have a couple of local IFA’s that are willing to step in if necessary, Compliance is insourced, Portfolio management is insourced and we communicate administratively with 95% of our clients via Dropbox. We also have a regular Client Review Board meeting to review and discuss these points, amongst others, educational videos on our website, regular weekly market updates etc., etc. and I still have time for Golf 3 days per week, racketball and snooker. Time management, good organisation anda brilliant CSA are my answer.

    • SJP are not true one man bands any more than a Network member is a true one man band. Someone looks after their compliance and most often their research and goodness knows what else. A true one man band does it all.

  3. I agree with Francis. I ran a one man band for 25 years – I think quite successfully. Sure it’s hard, but that makes it all the more rewarding. No stupid management meetings or interruptions. You can devote full concentration all day. You don’t have to work to feed anyone else but yourself and your family. (Sure there are assistants, but LOSC ensures you only pay for what you get).

    Good cost control is possible (and vital)and of course you can easily adopt a John Lewis principle – ‘never knowingly undersold’. Which means you can knock spots off the competition as far as charges are concerned.

    Of course this assumes that you are also well qualified and in decent health. I was never out of contact and only had minor incidents of illness. An overnight stay in hospital was managed with a laptop & mobile phone. As were not infrequent and regular holidays. In 25 years I never needed my locum’s intercession.

    I could have expanded the business , but that would have meant becoming a nanny, supervising others work and increasing the risk to the business as well as increasing regulatory and other costs exponentially when all I wanted to do was be an adviser.

    So be not afraid – go for it. It is definitely the way to go.

  4. It is fair to say that simply trusting your adviser is no longer enough in the eyes of the industry and whilst there is no doubting the fact that ageing clients are trusting their ageing Advisers totally (rightly or wrongly!), this relationship will be grandfathered out of the industry over the next 10 years and with it, they type of advice process which has existed with it; to be replaced by graphs, long reports and hit and hope assumptions…Let it die it’s natural death, for the sake of the elderly clients who need and value their one-to-one time!

    • Steve

      You may be a little out of touch. I presume you are with a larger firm (two is 100% larger!)

      I can assure you I presented graphs and produced my own XL valuations that contained a hell of a lot more information than the dross hauled down from a platform.

      As to long reports these are not a plus. Indeed clients hardly read them. I have seen 40 page reports crammed full of rubbish. I’m glad to say that my 6 to max 10 page reports were judged a model of client engagement and comprehension.

      I’m sure Francis Klonowski can tell you something similar and I was pleased to see the expert view sticking up for the one man band.

      • I’m a one-man band Harry and wouldn’t want it any other ay at this stage!

        I think you highlight my point, we do the data and reports as they are required, but applying the knowledge in a way which delivers what the client ‘really’ wants is actually a rather more special gift than many think/assume!

  5. In my minds eye, from one who started off 27 years ago with a big company, moved to a med IFA, then started a small IFA practice, then down to just me myself and I,
    My thought is this a regression or progression ?

    Through out those years safety has always been fragile, be that from sales pressure, company bulling, regulation and even personal financial security.

    As a one man band now, as I have been for many years now, I do feel as secure as I have ever been from a business and a personal perspective, however saying that, dark clouds are ever present in the South East…….

    As an industry we have a situation now where its a constant, take take take nothing is being put back in, both from regulatory and industry….. from one side because they can, the other because they cant !

    Has the one man band IFA have a future ?

    I have been through the sausage machine and rubbed shoulders with the fat, offal and gristle and have no desire to return…… so yes we have a future, but it a’int going to get cheaper nor easier

  6. What a good item even if the title is somewhat provocative.There is a degree of masochism in being a sole adviser firm but the freedom of direction it affords mostly justifies it. An examination of the bandings reveal that in the 2 to 5 adviser firm the average number is 2.8 meaning that the majority are really only two adviser firms. Similarly the 6-50 banding has an average of 9.2 so all but the top 38 firms have less than ten advisers on average. So all but the top 38 firms by adviser number, 5180 firms in total, have an average of less than 2.8 advisers. Clearly adviser firms are fragmented but currently the small firm remains the dominant force.For all the disadvantages mentioned clients value the personal service the eludes large firms because of their different culture.To quote one large firm they are about ‘maximising shareholder value’ which can make clients feel like pawns in a game. Perhaps sole traders should consider linking up with other sole traders to benefit from some economies of scale without loss of the personal touch they are famed for?!

  7. I agree with most of the article and comments made. I worked as an IFA for a large bank for 29 yrs, now “on my own” albeit part of True Potential WM, they provide me the means to do the job, probably a stepping stone to being a DA in the future. I have invested in a PA & part time Secretary this has enabled me to grow my business with more clients than average, charge below the 3% & 1% ongoing quoted and I have a work life balance. So far after 4 years there has not been an emergency!

  8. Having started at a Bank and moving onto the Prudential, and then to a local IFA firm, to being a sole adviser, life is tough but it does have its benefits.

    Earlier this year my Mother’s cancer came back and sadly she passed away in early April, however the time I was able to spend with her before she went was invaluable.

    It meant being able to sort her financial affairs and then her estate in a very short period, to getting probate did not effect my business too much.

    Having good working relationships with other advisers and contacts allowed my business to run with the mortgage and pension transfer work being outsourced.

    Clients win, and so do I.

    Based on work done in the last few years I even had time to take 2 holidays during this summer, something I could not have done say 4 or 5 years ago.

    Working for oneself is hard work but not having to think about colleagues and how their work would effect my business, does make it more rewarding.

    Finally we are all different in how we work, how we interact with other people and therefore one approach does not fit all.

    • Apart from the continuity issue,my concern is about compliance.

      If the IFA is directly regulated, where is the oversight. Most people are honest, but there are also the Harold Shipman’s of this world.

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