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Phil Young: Cracks are appearing in client reviews


The world failed to come to a shuddering halt in 2013 when the outcomes of the RDR finally clicked into place. Clients received, signed and returned a raft of paperwork, and carried on paying for advice. No doubt many wondered what the hell it was all about.

Most advisers are looking for a few more clients but the need for a constant stream of new business has reduced and, with it, in theory, the risks around advice should follow suit. I have, however, seen an increasing number of problems recently around the administration of the ongoing review service. Processes still revolve around new business and some cracks are appearing.

Proving it

I have spoken to a significant number of business owners who all assure me client reviews are taking place but do not offer a way to check whether that is true or not. They would not be able to prove it across their client bank or in a board meeting. Clearly, there is the ability to check every single client record if it came to that but by then the horse would have likely bolted.

There is an obvious need to have some form of centralised record of when the last review has taken place across the entire client bank. I would not expect this to be reviewed for exceptions anything less than monthly.

Based on my own experience, specifically providing audit services, it gets trickier to manage as the years roll by. The more advisers and clients you have, the harder it becomes. But even the smallest firm might make small adjustments for efficiency. When reviewing the monthly management information you should start to ask certain questions:

  • How many meetings are cancelled by the adviser and how many by the client? Are you under an obligation to rearrange a meeting quickly to the detriment of other clients if one cancelled at the last minute? How do you fill the time when a meeting is cancelled? What if your client cancels three meetings in a row?
  • What is a reasonable date for scheduling the next annual review meeting? Do you set a definite date (for example, 12 months from the last meeting) or a window (for example, within three months of the last meeting)? What if the last meeting was delayed? Do you set it from the delayed or original date?
  • How long does it take to get follow up paperwork out after a meeting? If a review meeting throws up some additional work, should reports and processing not be followed up like any piece of new advice? When does it go out of date? Often it is not tracked as effectively as new business.
  • If a client resigns from your service at a certain point in the year could they ask for a review or some money back based on the fees paid and services not delivered? Would you lose money on them if they left straight after a review?
  • What do you do if you have missed a review? Clearly you get it sorted quickly but, as you are being paid part of your agreed fee to undertake the review, are you obliged to repay a percentage of the fee and undertake analysis to check if the client has lost out? This point is a very difficult one for advisers and business owners to confront.

Managing models

The difficulties in managing model portfolios for large numbers of clients is also coming to the fore. There are many good reasons to use models but they can also become a burden where a growing number of clients do not respond to change requests and you are obliged to keep multiple legacy models active. In theory, an annual review should sweep these up (although a small but growing number of advisers are looking at obtaining discretionary permissions to make the administration of models more efficient).

It has become apparent there is an inherent cost to managing models beyond their research and construction. The growing use of outsourced solutions for certain parts of the client bank suggests an acknowledgement the administrative process is starting to creak a little. I am told advisers are moving to outsourced solutions because of the difficulties in research but I am sure it is motivated more by these operational issues.

Hidden blemishes

For VAT reasons, service schedules rarely break down the cost of component parts of the service and few advisers charge flat or time-based fees. This helps hide a lot of blemishes. As services mature and fee charging models develop, some of the questions above, which may seem far-fetched now, will become relevant. I know from experience. In the meantime, making sure the basics are in place to check and prove a review service is being delivered is a regulatory minimum not enough firms are achieving.

Phil Young is managing director at Threesixty


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. The biggest hindrance here I would guess are antiquated back office systems which still revolve around the concept of new business or cases. There has to be new money or something like that to trigger the system to recognise the review. I have for some time asked one provider to do this (and I believe they were addressing this issue). My argument was that a client review is subject to the same compliance checks and audit as a new case would be even though all you may be doing is rebalancing a portfolio. One way around it I guess is to add a nil fee case or some work around like that.
    For ourselves, a good diary system is imperative and our business process /client agreements helps but for mature businesses it is not easy.

  2. The commitment is to review, who said this requires a meeting. Your client is paying for what you do for him/her, your process, not for a meeting unless necessary. Promising face to face meetings as a matter of course makes your business self limiting. Meetings should be where needed. Value your process.

    • Very good point Tony

      I do loads of “reviews” and to be honest very few of them involve any client interaction what so ever;
      If things crop up that a client should be aware of, then a visit, e-mail or phone call may be needed, the vast majority of stuff is regulator/compliance crap saying we must tick this box we must demonstrate we do this or do that, at the end of the day I work for my clients not the FCA,

  3. Try a back office system that does log appointments and other servicing history! Contact me for details.

  4. Sounds like a lot of activity for its own sake and really only relevant to high net worth clients. Does anyone really think that 95% of the population (a) would be willing to pay for this level of service ? and (b) ought to ?

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