PRESENTER: Hello and welcome to our panel today: exploring value and what it means for you, your business and your clients. Joining me today from Quilter, I have Gemma Harle, Network Managing Director, Stuart Cross, Managing Director Strategic Partners, and Paul Young, Head of Business Consultancy. So starting with you, Gemma, how would you define value?
GEMMA HARLE: Well, value means different things to different people, but in our world, in the financial services world, it’s really important to think what it isn’t. And it’s not just linked to the end product, to the advice. And value can be made up of many things and is unique to different organisations. But it’s really important that each adviser, each business has a clear articulation of the value that it creates for their clients. And that this isn’t around just one particular thing as I said about the advice, it’s about the added value around security. It’s around in terms of the protection, peace of mind. So it’s broader than just a product or an advice event in our space.
It’s also linked to the whole lifetime relationship that we have with clients. So it should absolutely cover the value they get when they become a new client, what they get while they’re with you, and also what they need to do if they need to leave or exit your business.
PRESENTER: So it’s that holistic, long-term view of advisory.
GEMMA HARLE: Yes, to be clear, it’s not about price. In any industry, it’s not just about price. If it was all about price and reduced price then we’d all be shopping in Lidl. We’d only have Lidl as a choice, Waitrose wouldn’t exist. So it’s not about price. It’s about the added value that organisations bring to their target clients.
PRESENTER: And why is it something our audience should focus on now?
GEMMA HARLE: Well, there’s pressure on fees or there’s perceived pressure on the fees that we can charge now in financial services. So being able to articulate the value that your target clients can get from engaging with financial advice is really important. And I think around that I’d just call out sometimes we use it as an excuse and say the regulator just wants us to race to the bottom on fees. But that isn’t the case. What the regulator wants is for clients to absolutely understand what value they’re getting for the money they’re paying.
PRESENTER: And speaking on the regulator, Paul, so the FCA are putting out their paper on Consumer Duty this year, what impact is that going to have?
PAUL YOUNG: Well, I hate to say when I first read it I was thinking well what’s all the fuss about? Because actually when you first read it, you think what’s the problem? The Consumer Duty piece talks about putting the client at the heart of your business, I thought right, that’s ticked, that’s fine, we all do that. Then the next level was cross-cutting principles and I’m thinking yeah OK well that’s again act in good faith and make sure you help clients pursue their financial objectives, tick, we’re doing all that, can’t see what the fuss is about! And then I looked at timescales. The consultation paper stops end of, well, middle of Feb, looking at implementing rules starting in July, and we’ve got until April next year to implement it and I’m thinking OK I need to take more interest in here. Because it looks like a major change step up into outcomes-based rather than process-based. And those outcomes they sort of stick into four boxes. So you’ve got, again it takes things like the PROD rules a bit further, but four things: products and services; price and value, which links into what Gemma was saying because they’re not mutually exclusive; the consumer understanding, so that’s your communications and that sort of stuff; and also what consumer support you give ongoing.
Now again you start thinking oh well we do all that, what’s the major issue? But there’s a major difference in there is they’re actually getting more prescriptive about how you assess, test and monitor. So not just I’ve got a website, I communicate by email, it’s everything from my app, my website, my suitability report to my ongoing service, how do I know it’s not just good but it’s right for the right target market? And the worrying thing for me is if you, not to scaremonger everybody, but if you look at the FCA paper at the back, it says estimated costs of implementation per type of firm. Small firms, anything between £9-26,000 to implement and up to two-and-a-half grand a year they’re expecting additional cost to do this; big firms, anything between £600,000 and £1.4million to implement and perhaps up to 60 grand a year to implement. Now who knows how it’s going to flow through, but that definitely got my attention, thinking OK, but the main thing that I read from it is understanding your value and demonstrably getting that across to your client and checking that it’s like that ongoing with your client as well, which is a major step further I think from where most businesses have come to.
STUART CROSS: I think just on the back of that, advisers, firms, pretty resilient bunch, the only constant in our profession is change, but you can’t ignore it. I think what we’ve been looking at, and linked to what Gemma and Paul were saying, is when any changes like this come, have a look at how you operate currently, have a look through an updated lens and then adjust where needed and consider what approach you need to take. And linking to what Paul was saying, the three questions on the value front that we’d start at is, as a firm or an adviser, can I define what value we add to our clients; at number two, can we clearly articulate that to clients; and then can I demonstrate it. And if the answer to any of those is no or maybe I think that’s a really good place to start to really get your thoughts going on, OK, what do we need to look at in light of these potential changes.
GEMMA HARLE: And I think the other thing in the paper that rings out for me is when they’re talking about fair value, they actually call out it’s fair value in the digital age. So they are looking for us to articulate it differently, because we’re all in the digital space, even if we do face-to-face meetings. So for me that’s a real callout that you really need to look at this really closer in the environment that we work in.
PAUL YOUNG: Yes and the fair value thing is, again, it’s digital, but it doesn’t mean that digital’s cheaper. Let me just clarify that, it’s about fair value. There’s a lot of cost efficiencies from clients not travelling in. Just because we’re doing it by Zoom or a digital enablement doesn’t mean we actually have to do a cheaper type of value service. It may well be, but it’s not all that mindset of digital is cheaper. It’s about this fair value. And I think that comes out very clearly that it’s about fair value. The problem we’ve got of course is value is in the eye of the beholder. Really the only person who can really test it is that consumer-led view, which is why that extra level’s coming into those four outcomes.
PRESENTER: Well I guess it’s like Stuart was saying you can say we do this and we provide this but actually articulating that and presenting that in a way that’s understood is actually almost a different step in itself.
GEMMA HARLE: Yes, I look at trying to define value of your business. It’s like when you try and write a CV, when you try and write it on yourself-
PRESENTER: And you’re like, I can do that.
GEMMA HARLE: -and you don’t put all the skills in that you’ve got, because you think well that’s just a basic, why do I need to write that down? But it’s actually of value to a potential employer. So I look at that the same as when people are looking at their business, some of the stuff we take for granted and think somebody will know, we have to write it down, we have to show it to the clients, but we also have to have the records on it.
PRESENTER: So, Paul, this is going to have quite a significant, I guess, change for how principals run their businesses and advisers operate?
PAUL YOUNG: Yes, well, potentially. I think the worst-case scenario, as Stu said, it’s a good pressure test against it. That’s like the easiest worst-case scenario is just a pressure test. But I think as a sector, and it’s not just us as a sector, in most sectors, because of familiarity breeds contempt, you forget the value of what you actually add. And I think we, as a sector, especially in the current regulatory view and just the natural macroeconomics of constant chasing down value, we’ve got to get better at articulating our value to clients.
PRESENTER: What balance do we need to strike here, Stuart?
STUART CROSS: Well, advisers and firms, they’re not charities. The key balance is delivering value to your clients whilst running a sustainable business. You know, the two things, that’s the balance, you know, one can’t offset the other. So that’s always being mindful what you’re doing for the client, but also you’ve got to run your business sustainably and profitably, and that’s vital.
PAUL YOUNG: Actually funnily enough charities, they know the price of what they do and they know the value, and they are sustainable. So in some respects perhaps we need to think like we’re charities going forward-
STUART CROSS: Yes, fair point.
PAUL YOUNG: -because they do deliver good value. They have a price, they are absolutely accountable, but ever try negotiating with a charity, because I have, it is tough. So yes perhaps there is another angle to this, I don’t know.
PRESENTER: I’d love to know what you were negotiating there, but!
PAUL YOUNG: It’s a battle scar and I got PTSD on the back of it!
PRESENTER: Yes. We move to section two now, which is business planning. So, coming to you, Gemma, for firm principals and advisers reviewing their three to five year business plan, what should they be focusing on?
GEMMA HARLE: Well, firstly, it is really important that if you’re just an adviser you have a business plan. It’s not just linked to principals or larger businesses. And obviously forward looking, focused on the changing needs of the clients that you service or the clients that you’re targeting to bring on board, the technology solutions, changes in engagement, etc. should all now be very much challenged as part of the planning. And the way that we look at it, in terms of, it’s broken into three sections, in terms of looking at how you can carry on running your business profitably, grow your business in the way that you want to grow your business but making sure it’s sustainable, and then with the eye on when you want to exit, how can you do that with confidence, know the direction of travel there and capture that in your business plan no matter where you are in your thinking and how far in the future perhaps your exit plan is, and that’s the way we chunk it down and view it.
PAUL YOUNG: Yes, they’re all interconnected, almost like a Venn diagram, with it, and what we’ve found is that a lot of firms might say - and I’m sure Stu will touch on this - well I’ll worry about my exit, I’m 30, 40 years old, it’s miles away! And of course you say well is that the reason why you don’t talk to your 30-year-old clients about pensions? Oh no we do. Oh right, well, have you thought about taking your own medicine? And the second thing is that the things that help you deliver more profitably and grow sustainably, actually funnily enough there is a direct line to the value of you as an adviser and your business. So it’s not like doing mutually exclusive parts as well, isn’t it, tiny little additions today and adjustments today can make a massive impact to current and future values.
PRESENTER: And focusing on those three points, starting with growing your business, what do we need to be mindful of here?
STUART CROSS: So if we’re looking at growing your business I think it links back to the point Gemma made earlier around having a plan. Because challenges that people tend to fall into around growing a business is trying to do too much too soon. With anything it’s kind of right OK identify what are the opportunities to grow your business. Then what are the barriers that present themselves in those: do I have the right types of clients, do I have the capacity, do I have the capability within my business or within me, if I’m an adviser on my own? And then once you’ve worked those through, it’s then identifying, OK, which one is going to make the most difference, and then putting together a plan, not only putting it together but then actually doing it, doing one thing really well as opposed to doing a host of things badly. And then once you’ve implemented one thing, embedded that, then you can move on to the next thing, which allows you to have that ongoing growth and grow sustainably. That’s what we look at.
PAUL YOUNG: Yes and I think the test for it is saying to any adviser, even an adviser in the latter ends of their career who has got more than enough clients, if you say to them, do you want more of the right type of client? They can’t say no. It’s like well why wouldn’t you have more of the right type of client? So breaking it down into, we talk about three lead streams. You’ve always got your existing clients, referrals, recommendations, but what about your professional connections, you know, that type of thing, and then also about what is your media presence or passive media presence, and there’s always those three things. And within professional connections, there’s estate agency, accountant, lawyer, so you get like little swim lanes of what’s, and some things take longer than others to implement. But things that, testimonials, using testimonials really well to get more of the right type of client and using some of the behavioural science that we’ve learnt with firms, that’s had an incredible impact. You know, literally asking for people in the right way rather than can I have someone like you? But actually asking them in different ways to help elicit that can make a massive difference to get more of that right type of client.
PRESENTER: So it’s sort of like using your existing network in a way?
PAUL YOUNG: It is, but also doing it in a far more, I dare say it, 2020-type way. It’s not about do you know anybody? Because that sounds desperate, doesn’t it; it’s just about how, what were you nervous before you came to see us, can you remember what your nervousness was about, what were you wary about, what was the best part of it, what type of client do you think would benefit most from it, is there anybody you think fits that criteria and if you do, this is how you introduce. That type of way can be far more professional with some, well, we’ve had in some of our firms 82% of people asked give an unprompted referral when they use this type of mechanism, so that can be really cool. But it’s not just about clients, it can be, it’s also about delivering service as well, but it’s also about looking after them. But also it’s about getting more of the right type of advisers I guess as well.
STUART CROSS: Yes, that’s it, but recruitment isn’t the be-all and end-all; recruitment is a potential solution to help grow a business sustainably. But, as Paul says, and linking back to having a plan, it could be actually I just need, what does your ideal client look like? It looks like that. Right I need to go and find four of those this year or one every two months. And you don’t need a new adviser to do that, that’s a plan for you to go and do it. We’ve also seen other advisers growing effectively who actually there’s some product areas or advice areas that just don’t work for them. It could be mortgages, it could be they could spend a lot of time for very little return in their eyes and they want to focus elsewhere, and what they can do there is find a colleague within their business or a trusted professional outside of their business and refer out those clients to create that capacity to then focus elsewhere.
So recruitment isn’t always the be-all and end-all, but sometimes you do need to bring new talent in, because again we’ve had some great experiences where firms have recognised that actually they’ve focused on wealth but not quite so much on protecting their clients’ wealth. Because they just haven’t had either the time or sometimes the specialism and the resource to do that. So we’ve seen firms bring in specialist advisers to just focus on that protection element. And that’s worked really well for the clients, worked really well for the firm, and also those new advisers coming in, starting at protection, some stay there, but others have since developed into full wealth advisers. So recruitment can enable you to deliver to a wider number of clients and ensuring that all areas are covered. And also, the other thing, you can’t forget the key role that paraplanners and admin support play within creating capacity and capability in firms. So recruitment isn’t just about new advisers, it’s also have I got the right people in my business supporting us to deliver what we promise to our clients and what we need to do to run a sustainable business.
GEMMA HARLE: And doesn’t that link back to an earlier conversation about value to the client in terms of being able to give the client access to whatever financial advice they need. I have to say in my experience I’ve seen so many business plans, as you guys have, where advisers think, or firms, they’re going to double overnight because they’re going to attract all these new clients when they’ve got these clients sitting there that they’re only providing one line of advice to. And the much more sustainable models was where it’s access to financial advice across the piece, whether they do it within their business or not.
PAUL YOUNG: Yes and that succession planning, talking about business planning, that succession planning, especially if you’re looking to recruit and attract more of the younger future advisers, that start paraplanning, moving in through, I always use the outliers as examples to get people’s attention. But we’ve got a firm, mortgage protection focused, admitted with three protection plans a year in the firm, because they’re too busy doing mortgages, bite the bullet and do the career progression plan, they’re doing 22 cases per month, from zero to hero. And their point was look we know it’s good for the client, we know it’s right, we’ve just been too busy, and they’ve got a specialist now who’s been proved, gone through the understanding, as Gemma says.
Now, OK, and they are the exception rather than the rule, but it’s almost like that whole why didn’t we do this years ago? And it’s obvious but not apparent sometimes, you just need that little nudge and sometimes pull on the heartstrings of what are you doing that’s not right for your client? It comes on back to this outcomes-based stuff, I suppose, from the Consumer Duty, but can we look at ourselves in the mirror and say have we done everything we need to do to secure and preserve that wealth of the client, and that’s an easy way for career progression definitely.
PRESENTER: So, Stuart, what are some of the main challenges to growing your business?
STUART CROSS: Well, apart from delivering an effective plan and really doing what you say you’re going to do, what we see is just sometimes hitting that glass ceiling. You’ve got a certain number of advisers, you’ve got the right back office team, all working collaboratively together, delivering to clients, but there’s only so many clients that can be looked-after, and that’s something that you’ve got to face into because firms have done very well looking after clients, clients paying for an ongoing service, but a real challenge to growth is ensuring you’re delivering to those clients that are paying you for that ongoing advice and guidance, but then how do you then, how do you still have capacity to grow.
So sometimes it’s about looking at actually am I running my business sustainably, are we running as efficiently and as effectively as possible to create capacity to then grow again. So sometimes it’s like hitting that glass ceiling or before you hit the glass ceiling just revisiting how you do things from a day-to-day basis. In servicing, Paul, we’ve seen a lot of change in that since RDR, but also even since COVID.
PAUL YOUNG: Yes absolutely, there is this glass ceiling and it’s different for different advisers, different life stages, but one of the biggest things we’ve seen is again obvious is you get peaks and troughs. That advisers who are being successful are having to deliver their servicing at typically a time before tax yearend, at a time where also they’re getting more new money in and more new enquiries and you get this sort of perfect storm of stress. So first of all just analysing the distribution of servicing can take a lot of stress out of the business, but even that doesn’t stop the cap happening. So we’ve seen firms and we’ve worked with them to disengage the process from the documentation the client gets from the actual tech. And long story short, we’ve seen firms move from, say, 138, 150 clients cap, they’re now at 400 per adviser. That’s a game changer. That’s the advice gap solved right there.
But it’s not easy, that’s taken a good 14 months of hard work and dissemination. As well as technology doing things for, not instead of, so it’s still an in-person advice process, but using, bolting together what technology is out there already, not proprietary software, but also using certain things that we have to use, like cashflow or whatever, but building them together and bulking them together. But the solution isn’t just technology, it’s about your process, and then client engaging documents they might have a fighting chance of opening up and liking and, again, how you get your value across in those. So that to me has been a massive game changer. The more we can get scaled, that can change the advice gap in the United Kingdom actually, if you want my opinion.
PRESENTER: So it’s improving the efficiency so that there’s space for more?
PAUL YOUNG: Yes, as well as on top of that is fair price, fair value. All too often we’re still finding that firms have a terms of business, fee menu, whatever, and very rarely do they stick to it. There is a lot of internal behavioural bias negotiation in the advisers’ mind before they talk to the client. So articulating that value, using things that, hopefully you’ll see in other, some of the later modules that you’ve got put together, it’s things like fee calculators, how to get your fees across to a client personalised to help take away unnecessary negotiation, be paid fairly for what you deliver, and that applies to new initial fees as well as ongoing. So again possibly on the back of the Consumer Duty piece, we are all going to be forced to look at what type of service do we deliver and is that fair value for client A who’s up there and client C down here and justify. And that’s fine and dandy because that’s business and business normally sorts it, but we’re going to get a bit more of a regulatory nudge on that. So it's a really good time to think about your pricing and how you articulate that to clients.
PRESENTER: And, finally, coming back to exit, so you said it’s not just people on the verge of retirement that should be thinking about this, when and how should advisers be thinking about it?
PAUL YOUNG: Well, I always think, it’s like the old Chinese proverb, isn’t it, when’s a good time to plant a tree, now and 20 years ago. You’ve got to get on with it. But there are certain things. You can make yourself far more attractive. Consistency of fee, consistency of service delivery, because of course if I’m going to be bought or sold or I’m going to part-retire, you know, having that consistency, that spirit, whether I’m 30 years old or 80 years old, having that consistency is a good thing. And it also is far more attractive to any potential purchaser or - and I’ll hand over to Stu because he’s far more experienced in this – is well what about internal buy-outs, what about part-retirement. All too often we talk to our clients about what are you going to do when you don’t want to work so hard. Because it’s no longer you finish on a Friday and that’s it, you get your gold clock and you’re off, it’s a phased retirement. And yet still in our sector I think there’s almost like oh I need to pack up my, hang up my calculator and that’s it and away I go. Well, actually, I ask a lot of advisers, how would you fill your day, how would you fill your day tomorrow? And it’s I might have to talk to my other half, oh my God! What are you doing, how are you going to fill it? And actually they really love what they do. They really love what they do. So why not think about protecting a core amount of really profitable good clients and perhaps MBO, management buyout or sale or whatever for others, I don’t know, but, Stu, do you want to?
STUART CROSS: No, I agree, Paul. I think we’ve all seen people who retire fully and then you see them a month later and they look like they’ve aged 10 years. But speaking to a number of the principals of late of a certain vintage, like Paul said, they sort of say well I’m not quite ready to hang up the pen or the calculator just yet, but I’d like to work slightly less hard because I still enjoy, I still get the buzz from seeing my clients and delivering or developing, mentoring new advisers, but I’m not ready to give it entirely up now. But you can’t just think that and then make that decision tomorrow, it all comes with planning. So again it’s sitting down thinking right what do I want to achieve, what have I got here? And then talking it through with somebody, bouncing ideas off somebody around OK what options do I have: is it I sell my business, is it I sell part of my business, is it I bring the next me along who will eventually step into my shoes and they can see their career path through that.
So it kind of doesn’t matter whether, what stage your business is at, Paul referenced, I think he stole my line about we get clients to start a pension early, it’s just the same for advisers and businesses, even at the start, almost a little bit start with the end in mind, how can I put together a business that will help me achieve my longer-term goals, deliver to clients, deliver to me ongoing, but also how can I build something that has a value at the end? And I think that’s important whatever stage that you’re at is think about it.
PAUL YOUNG: Yes, the fee consistency thing I think is something that anybody can do now, which has an impact if you retire tomorrow or in the future anyway, and we’re finding some of the research, we looked at acquisitions two years ago pre-COVID and I haven’t got anything more recent, I’m afraid, so don’t, you know, but I think what’s a good indicator is just consistency of fee could have a kicker of an extra 15 to 30% on top of any agreed value. And also it could have a detraction of between 15 to 30% in the due diligence phases of sale. So consistency is good. And the next thing of course is that standard and consistency of service. Often we see, I charge the same fee, but they’re good friends of the family, I do this for them, but other people that I might just do that for. Where’s the rationale and consistency? So the consistency will help your profitability now, but it doesn’t have any negative value on your overall value, so why wouldn’t you have a look at that now? So those are sort of the things that we try and look at.
GEMMA HARLE: Also, you talk about it a lot in terms of how if you’re growing your business and you are bringing on new advisers, you need to keep them on the journey with you and how you should be setting up their remuneration, how you can get them involved in your exit plan and doing that early on. It’s too late to do it once you’re deciding to go because you haven’t taken them on that journey and you’ve probably made some mistakes about how you’ve structured your relationship with your own employees and your own advisers within the firm.
PAUL YOUNG: Yes, to be fair, add to that, we do add a lot of, an extra request for assistance is well what about my remuneration model? How do I get the balance right between attracting them and retaining them, but also I’ve got to be sustainable, I’ve got to be here in the future as well, I can’t give too much away but how do you balance that? And unless you’ve got that sort of well this is why we’re building this together or this is the environment, you know, are you a network for advisers or are you a business builder, discuss. But where’s the long-term value? And if you haven’t got that progression purpose what are they trying to do with it, some people can fall out on the way. We see a lot more involvement in share of value schemes, share options, phantom share schemes, buy-ins, management buyouts, management buy-ins, that’s been a massive change I’d say in the last probably two to three years, huge. You know, from being, say, out of 100 firms two or three, you’re getting double digits now, people saying either they’re doing it or they’ve done it already as trying to look at different ways to share that capital value with advisers. And also their support staff so that the person on reception, if it’s a slightly bigger business, they’re in it as well, they’re in it to help to make sure that whole client feel is followed through and that spirit of the business is delivered, whether you pick the phone up or you get an email.
STUART CROSS: Advisers are a scarce commodity. So when you find a really good one, there’s nothing worse than bringing that person, identifying that talent, nurturing, mentoring them, bringing them into your business only for them to then move on elsewhere. So, as Paul said, you know, once you’ve, when you’re identifying those people, work with them so that they can see their future within your business, what do they want to achieve, what’s the key role that’s going to play and how do you lock them in through their aspirations. So that’s vital. And I think that’s helped with, you know, we’ve seen that, exactly as you said Paul, a number of firms now are saying right we want to look at, whether it be share options or other career development paths, to lock in these people because they’re the future of the business, they’re the future people who are going to buy my business, I don’t want to lose them if I can help it. And quite often advisers don’t always want to go. It’s just they suddenly see a new thing over there and think oh I’ll go there, not quite, this firm hasn’t promised me what I wanted and I’ll run off there. But if you, as a business owner, if you set your stall out early, you have that career development, start with the end in mind to some degree, that helps with lock-in and retention of the talent, not only talented advisers but also talented support staff and paraplanners because they’ve got a huge and vital role to play as well.
PAUL YOUNG: Yes and most people don’t leave businesses within sector for money, they say it is, but that’s a hygiene factor. And there’s an old model, which is as good today as it’s always been, which is a third, a third, a third, if you’re looking at remuneration structures - that’s easy for me to say, sorry - but looking at a third for you, a third for the adviser and then a third in the middle is about well who’s doing what part of the process? If I’m self-employed, do all my sourcing myself, I pay my own la-la, well, of course I’m going to have a far bigger slice of the pot. But if I have lead generated, paraplanner support, IT offices, then the business should have no shame in taking more of that slice, and that is fact, that is how business runs. But sometimes we forget in the day-to-day and think oh I’ve got to pay more money. No, it’s people tend to leave because they’re annoyed with the advice process and lack of support or that arm around their shoulder, it’s not all about the remuneration. So that middle band is where we often tweak with businesses is what are you, and the value piece, you know, you’re giving up some money but what value do you get in return for the adviser as well as the client proposition.
PRESENTER: And, Gemma, coming to you, so there’s lots of consolidators in the market, is this purely about price?
GEMMA HARLE: No, our experience is absolutely not, in terms of when you’re looking at selling your business, the first thing that advisers think about are, my clients, what do my clients need, who am I leaving my clients with? You’ve got to think about these businesses have grown up over a long period of time. They’ve seen their clients go through many life-changing events. They’ve probably got families, definitely will have families that they look after and actually the last thing they want is to know that they’ve just literally walked away, put them in a dark room and walked away. They want to know that they’re in a safe pair of hands so that they can meet them in the pub, meet them in the golf club and talk to them about how they’re now working with their new adviser that they’ve safely handed them over to and have had an involvement in that handover.
And also you’ve got to look for the longer term. Yes, you can offload your clients for four times whatever, but if you actually have a longer term strategy with whoever you are working with in terms of the sale then you get a longer earn-out on it, you can negotiate the terms to suit you and to suit your clients. So I’d say absolutely not, the majority of advisers absolutely care about their clients.
PRESENTER: And this is a reminder we will be coming to all of these points, run, grow, exit, in more detail in future panels, but we move now to section three. So, coming to you, Paul, talking about this demonstrating and articulating value, what’s to stop this just happening naturally?
PAUL YOUNG: Well, yes, so most of our work is based on behavioural economics, I always call it science of decision making, our shortcuts to decision making and as advisers we’re not immune to that any more than any other professional sector. And I think it actually touches on what Gemma said earlier, familiarity breeds contempt, whether I’ve worked in the oil industry or pharmaceuticals, whatever, you still get people because they’re doing it day in, day out, they forget the real value they add. In our financial services world, the fact that, I always laugh, I think the three things that really unite any adviser, whether they’re independent, restricted or tied doesn’t matter, is they do three things. Number one, they have a risk-based conversation; number two, they then look at how long it is until the client wants to enjoy that money; and number three, they diversify, right, that’s what they do, right, doesn’t make any difference. And they spend a huge amount of time talking about their investment solution and all that sort of stuff and I say to them, so do you think a client could do that without you? Oh no, they can’t. Have you heard of Google, have you heard of the internet? They can go and do all that. But what you do really quickly is you say what name it should be looked after in, who’s going to own it and benefit from it and what tax shelter.
So you very quickly go well we’re going to put that into a SIP, we’re going top up the ISA, we’re going to put the bond, and we do that like that. And yet actually it’s really, really hard for a client to actually work out, do I hold this in my SIP, do I top up my pension or my other half’s pension. We do it so quickly and we seem to spend a lot of time talking about the investment solution, the strategy, the risk, actually they can do that themselves. But we’ve got to get better at thinking about what is it hard for a client to do without us? And making sure that it’s in the right name, is it in my name, my other half or jointly owned, who’s going to benefit, is it me, somebody else, my kids, and is it an OEIC or is it an ISA, is it a bond, is it a SIP, we do it so quickly because it’s our bread and butter, but we need to get better at turning up just that part of it, as an example. But I think our natural bias is that the things we do daily become habitual, and unfortunately we don’t see, we don’t value it. And the science of decision making tells us that when we look at, even if you’re going to change a tyre or do your wallpapering, you’d start thinking have I done this before, have I done it recently, have I got the tools and time to do it, is it worth me doing it rather than going down the pub and is it worth the risk of me doing it and getting it wrong - we do it really quickly. That is microseconds we go through all this and, of course, if you’re a bloke you think of course I can, I’ll go on YouTube and do it myself, but then you make a mess of it.
But those things happen in just normal life really quickly, it’s no different to financial services, and we’ve got to get better at thinking about how do we turn the volume up on the things that it actually is quite difficult for a client to do without us. And I don’t know if that helps with it, but I think that’s the main barrier. The main barrier is familiarity from advisers, and a specialist, if you ask a surgeon what do they do brilliantly, well, I just help people get better, they just don’t go through all that, they shorten. We distort, delete, hallucinate our memory and we compartmentalise it very quickly, we can’t help ourselves, so that’s our bias we’ve got to try and protect against.
PRESENTER: And you did some research into this.
PAUL YOUNG: Well, not just me, some very intelligent people, who I am not, that actually looked at the research part of it, yes absolutely. And I guess what we want to do is go back to, Stuart talked about earlier, you need to, how do we define it, how do we articulate it and how do we demonstrate it. And hopefully you’ll get in the other modules a bit more about the articulation and demonstration bit, but let’s look at the defining piece. So what we decided to do was say right who has actually got really good at defining the value of financial advice? And hopefully you’ve seen, and hats off to, Vanguard’s Advisor Alpha, Morningstar’s Gamma, and that gave us a start. But what we found was it’s very, dare I say, non-UK biased a lot of it, it’s very generic, it’s the generic value of advice and it is very investment focused, so we thought well actually let’s do something that’s UK focused in our target market.
So we went and found what is the behaviour of unadvised clients in the UK, and not people with just 10 grand to invest, a typical something that would be attractive, what do they do? And we thought well if we know what they do, how does that compare to an advised client? And then you can measure the difference and then you get a delta, which is called, funnily enough, the Adviser Delta, the difference that the advice makes. So what we found in the research, those unadvised clients, they do the following. Normally if they do invest, when they do it themselves, they’ll be mostly UK biased. They’ll go to UK stock. They very rarely diversify. They pick the shiny brand, the shiny thing that’s in the news, oh that’ll be good, I’m not going to comment on bitcoin or anything else, but they do the shiny thing. They don’t tend to have a common purpose, it’s all about I need to invest for the better, not I’m doing this to pay for my children’s education. There’s no anchoring with it.
So as a result of that they often fiddle, fiddle far too quickly and unnecessarily with it. And often when they do replace stocks, because it is mostly stocks and we found that mostly they invest in like six stocks at best. At best six stocks, that’s a diversified portfolio, isn’t it? Sorry about that, but it is, it’s not diversified. But what they tend to do is they go oh I’ll come out of O2, oh I’ll go back into Vodafone - that’s not diversification. So if you then say well if we know the behaviour and the returns that people are getting in unadvised, how does that apply to advised, and hence why we came up with the formulas that people can apply on an individual client basis if they want to in the UK.
PRESENTER: And, Paul, what practical advice have you given advisers in demonstrating value?
PAUL YOUNG: So, we’ve put together the Adviser Delta Framework and they can get access to, there’s a one page, well, sorry, there’s a PDF summary to try and give an example of a typical client. But it’s just to give you how does the formula work. But effectively it breaks into three areas: the name, ownership and tax shelter that you advise the client has a massive impact to advised clients versus unadvised clients; the second part is the solutions you put them into, the ongoing suitability, the risk, all of that stuff we talked about, again, has a tangible differential; and the last thing is behavioural coaching. The fact that you hold people’s hands, you reassure them in volatile times, you stop them fiddling with it, you give them the purpose. That again has a tangible value.
So if you go and have a look at that formula, we’ve had many advisers go and think oh I’ve got a really tetchy client who’s very price conscious, go and look at all the things you’ve done, and look at the tax you’ve saved them by making sure it’s in the right name, think about the protection you’ve given them, and it gives you some really good quantified numbers, and we divide it through on an annual basis. So you can say well on average that works out to be between 4 to 6% per annum. So my fee compared to that, it’s nothing is it. So it helps give some tangible parts to it. But I think if you invest some time to look at the theory of it, I think what it does is it just reassures, you’ve got to believe in your own value first, and what I think the best thing that’s come out of the feedback from that tool is it reassures advisers of oh yeah there is a lot of stuff I do and I do it really quickly, now’s the time to really turn the volume up, and there’s some formula to help you understand your own value even better.
PRESENTER: And coming to all three of you now, maybe starting with Stuart down that end, what are some key steps that advisers should take away today?
STUART CROSS: So I like to keep things simple, and apologies if it’s teaching people how to suck eggs, but going back to delivering efficient and effective servicing, Paul made the point around typically when you look at a profile of when an adviser is due to go and see their clients, it’s a little bit like that. And that’s just historically it’s built up, January, February, March, before tax year-end there’s a whole host, then goes quiet, then busy again, and that does cause some stress within a business. We’ve seen a number of firms, the easy thing they can do is just go and plot when are your reviews and just see what the line looks like. If it’s pretty consistent and aligned with how your business operates, then happy days, but quite often it is a little bit peaks and troughs, and a number of our firms on servicing, the first thing they did was plot that chart and then look at OK how do we even that out so we can deliver that more efficiently and avoid those peaks and troughs, and that’s always a great starting point for me.
PAUL YOUNG: So I’m bound to reference the value and value delta piece, but without going through the whole equation, the words that I think, so defining it we’ve done, articulating it, if our viewers or anyone else take away something, it’s just think about the name, the ownership and the tax shelter that you help your clients with. So saying to new clients, we look at your existing provisions first and without even researching the market we’ll make sure whatever you’re holding is in the right name, right ownership and the right tax shelter, because we actually find there’s a massive impact just in what you end up losing unnecessarily to the taxman just by apathy and inertia. You should expect us to have market leading investment solutions and all the other la-di-da stuff we give, but actually the name, the ownership and the tax shelter is that mindset thing that we don’t do cognitively enough and it has a massive impact to the end value. And that applies to mortgages, by the way, that applies to protection, trust work. Mortgages, is it joint tenants, tenants in common, most people don’t understand that, they have to Google it. Little things like that have a massive, massive impact to articulating your value, because it’s something that a normal client doesn’t think about. And there is no Google chart. There is nothing I can find on the internet that helps people make that decision process that we do as advisers really, really quickly. So I’d say name, ownership, tax shelter, new clients especially and at the next advice meeting we’re still going to make sure whatever we’re holding and what you’re holding is in the right name, ownership and tax shelter, let me explain what I mean by that.
PRESENTER: And coming to you, Paul, where can audience members find out more?
PAUL YOUNG: So what we tried to do is obviously tickle the brain today. There are a load of resources I’m sure you’re going to promote of where they can find them after this. But in each of the modules we’ve tried to make something that’s pragmatic, that you can have a go at implementing that night, whether you’re a business owner, adviser, whatever. So whether it’s a fee calculator, whether it’s a framework for your meetings that in the current world and climate will work better, whether it’s thinking about your servicing, whether it’s how you exit with confidence, some really, hopefully, some quite pragmatic tips. You’re not going to get everything overnight, but hopefully it might spark your brain to actually go and do at least one thing to get ready for that value piece.
PRESENTER: So unfortunately that’s all we’ve got time for. Stuart, Paul and Gemma, thank you for joining me today and thank you for watching. If you did want to find out more, we do also have resources underneath the player and we will be revisiting this in more modules.