Running your financial planning business more profitably

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  • 39 mins 25 secs

Learning: Structured


  • Paul Young, Head of Business Consultancy, Quilter Financial Planning
  • Sarah Elmey, Business Consultant, Quilter Financial Planning
  • Mike Simpson, Business Consultant, Quilter Financial Planning

Learning outcomes:

  1. The importance of establishing the link between fees and value
  2. How to meet the service delivery challenge
  3. How to build out and remunerate the adviser team

Guide to client facing fee calculator

The client facing fee calculator with a discount

The client facing fee calculator without a discount

The client facing fee calculator on a client by client basis

Channel: Business Development
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PRESENTER: Hello and welcome to Akademia with me, Mark Colegate. In this unit, we are looking at how you can run your financial planning business more profitably, and to do that I’m going to be joined by three members of the Business Consultancy team at Quilter Financial Planning. They are Paul Young, who is Head of the Business Consultancy Unit, and by consultants, Sarah Elmey and Mike Simpson. Before I bring them in, let’s have a look at the learning outcomes. These are: the importance of establishing the link between fees and value; how to meet the service delivery challenge facing adviser firms; and how to build out and remunerate an adviser and support team.

Well, Paul, you’re the Head of the Business Consultancy Unit, tell us a little bit about what you’re heading up.

PAUL YOUNG: So, we’re a small, they call it niche and boutique, which means another word for very small, I think, there’s only about five of us, but what we do is we work with firms to help them run more profitably, grow sustainably and, when the time finally comes, exhibit confidence. And there’s a variety of different tools and mechanisms we use, whether it’s in person, Zoom, etc., to help business owners, advisers and support staff hit that mark.

PRESENTER: And Sarah Elmey, as you’re out and about meeting advisers and their businesses, what are some of the key concerns facing them right now?

SARAH ELMEY: One of the key concerns is around fees and how they implement fees and decide what their fees are going to be.

PRESENTER: Thank you, so fees is one issue. Mike Simpson, what else is front of mind as you’re out and about on the road meeting advisers?

MIKE SIMPSON: I think it’s the articulation of the value that they actually provide to their clients. The issue that we have is the regulator has been talking about making sure that we articulate that value, but our stance is also that’s key but also that the client has a value to the business as well. And so we’ll talk more about that perhaps later on during the programme.

PRESENTER: And, Paul, as you’re looking at this, what else, we talked about fees, we talked about value, what else are we going to be covering today?

PAUL YOUNG: Well, I think we’ll look at focusing on helping people run more profitably. And if you break that down, you don’t have to be the Governor of the Bank of England to work out that it’s about income in, expenses out and that’s your profit. So we’re going to have a little test around different ways to help articulate value on the income, but also just some things you need to be thinking about in the running costs of your business.

PRESENTER: But just to start with, more broadly, what would you say are the main issues facing firms that they have to get on top of if they’re going to run themselves successfully?

PAUL YOUNG: Well, I think there’s an extra lens at the moment, even if you look outside of the sector, we’ve got cost of living squeeze, prices inflation, that’s not just our sector related at all, and there is a relentless focus from watchdogs, from consumer groups on price and value. So, if you really boil it down to the macro, we’ve actually got a situation at the moment where job security is really high. So job security is really high, so people are not worried about being made redundant because they can ask for bonus and salary increases because they know that they can go to a competitor. And then you overlay that into our sector where PI costs, regulatory costs are going up, there’s a constant focus on fees and value, the Consumer Duty paper coming up even more and focusing on what are you doing to justify your value to clients, I think you’ve got almost like a perfect storm.

PRESENTER: And what sort of difference do you think inflation is going to make to this, because obviously if you start trying to put your fees up, nobody likes that, but inflation’s running around at 8, 9% at the moment?

PAUL YOUNG: Yes, like I say, the inflation issue is one part of it because that’s your running costs, that’s your heating, your lighting, all that sort of stuff, but actually the other thing which I’m nervous about is, as a business owner, that advisers thinking about what bigger share of the pie can I have, what pressure are you going to put on negotiations for my remuneration costs, and that sort of thing and I think that’s going to be an interesting challenge in the next 12 months as well. Because, let’s face it, there’s only two types of income that you have as a business, it’s initial fees or ongoing fees, and we’ve got to get better at articulating the values, as Mike said earlier, on both of those.

PRESENTER: Well, Sarah, let’s pick up on that fees point, because you raised it first. What are the key things influencing the level of fees that advisers are able to charge and should be charging?

SARAH ELMEY: Yes, so whether you’ve got a flat fee based structure or a percentage based fee structure or a combination of both, the way fees are made up in our sector are made up of three things. So, first of all, there’s the minimum amount of time and therefore the minimum amount of cost to deliver advice in a particular area, irrespective of the complexity or the size of it; the second thing is the value-adds, the value that advisers bring because they’re experts in their field, all the things that non-advised clients miss out on; and then there’s the protection, the things that advice firms pay into to protect clients, things like PI cover, Financial Services Compensation Scheme, FCA, that are all paid on a percentage base, which tend to increase on a percentage, well, sorry, reduce on a percentage term but increase in actual pound costs.

So if you think about two clients, for example, one with 100,000 and one with a million pounds to invest, and you think about the time, and you think about the million pound client, is it 10 times the amount of time to help that client? Well, no, it’s not 10 times the amount of time, but it is more time to think about things like unintended consequences of income tax, capital gains and inheritance tax, and the advice is likely to be more complex. And then when you think about the protection for the million pound client, is it 10 times the amount of protection, does it cost you 10 times the amount? Well, no, it doesn’t, but the cost of PI does go up and that’s on a reducing scale, similar to a lot of initial fee models that are also the same. And what we find is that, we know that every business is different, but what we find is that a lot of businesses don’t look at the time and the cost in running their businesses and they often discount on their fees far too early.

PRESENTER: But how easy is it to sit down as an adviser, do you get a spreadsheet out and work out how much time you spend, I mean apportioning money to time must be a pretty tough and potentially quite a subjective exercise?

SARAH ELMEY: Absolutely, and there is a spreadsheet, and we say don’t overthink it, think about your core business and your non-core business and actually split those activities down, how much time do you actually spend on each activity, then you put your running costs in and then you can come up with a cost for writing a piece of business.

PRESENTER: And, Mike, sorry, you wanted to come in?

MIKE SIMPSON: I just wanted to add onto that. I was working with five firms this morning on a Zoom call, and one of the benefits of going through that spreadsheet, which we’ve developed over a number of years, is actually it gets the advisers to sit there and think am I the right person to be doing that job in the first place or should I actually be getting somebody else to do that, admin support or paraplanners, or just in general making them think about what it is that they actually do that earns money for the firm. It’s a tried and tested process in other sectors, but we’re waking up to that now I think.

PRESENTER: And when you show people the disconnect between what they should be charging and what they are, what sort of reactions do you typically get back from them?

MIKE SIMPSON: Well, stunned amazement to how do we help them with this, and Paul’s already talked about some of the tools that we use, and we’ve generated some tools that help them with explaining their fees to clients, and we call them, funnily enough, client facing fee calculators, and by implementing those we can significantly reduce the negotiation, I would say in certain instances almost to zero, eliminating the discussion about what do you negotiate on this, because one of the things that we find is that advisers typically discount their fees far too early in the process.

PRESENTER: And, Paul, in your experience, how much of this is about having the technology and the spreadsheet, if you like, and how much is it making sure it’s the person with the right personality in the business? Some people are better at asking for money and can do it with more conviction than others.

PAUL YOUNG: Yes, well, I think that’s the confidence part, you’re absolutely right with that, and I think our fear is that whether you’re absolutely fully wedded and confident or whether you’re perhaps a little bit more erring on the side of weak perception, that if you’ve got a third party, well, this is our fee menu, this is how we do business and it’s not my fee, it’s the firm’s fee, a lot of that third party confidence thing, that goes out the window, as Mike said. And just to be clear with it as well, when we’re asking people to invest, it’s only an Excel spreadsheet, all we’re asking people to think of, typically, and set aside between 11 minutes and 40 minutes, because if you do it in any less than 11 you’re just paying lip service, 40 minutes then you’re analysis paralysis, which is not good, and you can get to pretty much, right, in my core business this is how long it takes, this is how much it takes to cost to run my business. I can work out my hours, and not on a client by client basis, I have a gut feel, and that gives you your minimum fee. So, Sarah said earlier, all these parts, 100,000 client or a million pound client, there’s always a minimum amount of fee time in that. Well, if you can understand you’re subject to minimums, that’s the big step straightaway, because a lot of people don’t understand the profit that they need just to run the business, especially if you’re, I hate to say, if you’re a self-employed adviser, a lot of people don’t care, it’s just about getting the money in and they worry about the consequences afterwards.

So, to answer your part about the confidence part, I think yes it is a skill and we’ll hopefully drop some other things in later about that, the order that you explain things, there’s a massive impact to that, but all we know is that the more you own it, the more thought you put into it, the more that it’s the business’s fee view, the more likely you are to actually stick to those fees.

MIKE SIMPSON: And what we find is that once they actually have tried and tested it, and simply the tools that we generate and we can build with them, they go out and use it that afternoon, that evening with a client and they get that it works. It takes the confidence or the lack of confidence away to the fact that this stuff works. And that’s always reassuring for us. Everything that we do is tried and tested and proven with advisers in large organisations or small organisations, so we know it works.

PRESENTER: And, Sarah, when you’re out talking about this with advisers, is it an easier sell, this approach, for new clients, than it is to go back to existing ones and say I’m terribly sorry but I’ve been undercharging you for years, do you mind if we ratchet things up 20%, or whatever it happens to be?

SARAH ELMEY: I think, with new clients, obviously when we talk about the calculator, they haven’t seen the calculator, so I think they do find it probably easier with new clients, but I think with existing clients the relationship is already there. So they’ve built that relationship and that trust with an existing client. And advice firms are like other businesses, you know, the costs do go up and we’ve seen costs go up. So the fact that their fees might have gone up since last time they’ve seen them would not be unusual. And invariably we do say that an existing customer comes back, then you can obviously offer them a discount because you’re saving on your marketing costs, clients coming back, that’s what you want to encourage, but don’t give huge discounts like 50%, but maybe 12% or 15%. And then again we have a different calculator with a discount. So we’ve got one without the discount for new clients and then one with the discount for existing clients.

PRESENTER: I wanted to know a little bit more detail about how you prove the value to clients. So, Paul, can I come to you on that first and then I’ll bring Mike in.

PAUL YOUNG: Well, actually before I go onto that bit, just to build on Sarah’s piece about the fees piece. Trust is a key part. And we often do an exercise with advisers saying who would you be more excited calling, a brand new client, an existing client or a legacy database client? And everyone’s really excited about the new client. So who do you think is going to be the hardest to call and sell to or advise, oh the legacy, and of course they say oh I couldn’t possibly go to my existing clients and talk about fees. Well, they trust you, and if someone trusts you they’re far more likely to do as you ask them. So we’ve had examples where people have absolutely said inflation’s up a lot, I haven’t put my fees up since RDR in 2012, my fees are moving to this, is that OK? The client, yeah all right, I’m surprised it’s taken you that long to get to it. So they can be so much more direct. Whereas sometimes we pussyfoot around with, how do I build up the courage to talk about it, and actually all the science tells us existing clients, trusted more, you can be far more direct and they’re far more likely to value you anyway.

PRESENTER: Good point, so yes I take that on. And then to that point about just demonstrating the value, so for those that still need a bit of convincing.

PAUL YOUNG: Yes, sure. So Warren Buffett famously always said price is what you pay, value is what you get; in our language, it’s price is only an issue in the absence of value. And so there’s a run-up to this, which is often we talk about pricing far more upfront before we actually deliver the value. And we often talk about things in terms of what we do, not the value we add, or the things we stop a client missing out on by helping them. So, previous episode, we talked about Adviser Delta. One of the underpins of that is not the investment solution; it’s how is the client holding their existing assets and liabilities and what name, ownership and tax shelter. That’s really, really hard for any client to do without, well, you can’t do it on Google and, as advisers, we do it so quickly, oh, that’s a SIP, we need to top up your pension, we need to put that ISA, and clients don’t understand. They can go online and do a risk score, they can go online and invest at the press of a button with Hargreaves Lansdown, but ask them, should it be in a SIP or an ISA or is it a bond and should it be in trust, brain freeze. And yet often we don’t do that enough, we don’t remind people of the way you hold your assets and your liabilities, that’s really, and there’s a massive value-add then because, let’s face it, you don’t have to be a brain surgeon to know if someone can do something you can’t and they can make it quite simple, there’s a value just in that piece alone.


MIKE SIMPSON: I think building on from that, the work that we did with Adviser Delta went onto, and one of the more significant areas is the behavioural coaching of the advisers. Every single time that we have a correction in the marketplace, the client is tempted to move out and to go to cash. And time and time again over the years we’ve proven or it has been proven that that’s the worst thing that they could possibly do. And the benefit of having an adviser in there, not only just putting them in the right name, ownership and tax shelter, as Paul has already said, but it’s actually about coaching them through the difficult times so that they don’t make the bad decisions, and that’s one of the key elements that we try and get across with firms, it’s that behavioural coaching piece, stopping them doing something that their future selves will come to regret.

PRESENTER: Have you got examples of firms that are really good at doing that or just very nicely remind a client, remember we stopped you doing x a few years ago, do trust us this time around?

PAUL YOUNG: Absolutely, yes, and part of what we’ve been doing recently, I mean there’s a behavioural experiment about cars and value to do with servicing and you think well if you’ll indulge me. So one of the experiments just to talk about the order of discussions is you ask people just randomly, how happy are you driving your car? And there is a direct correlation between the value of your car and how happy you are. It’s a 0.67 statistical relationship, which I am told is very, very high. Now, if you frame the question slightly differently, how happy were you driving your car yesterday, the correlation goes. Now, what is happening here? Well, actually what’s happening is, is the how happy are you driving your car, the actual questionnaire is how happy are you with my service, because you’re in the moment, you’re in the present. When you say to clients, how happy were you driving your car yesterday, the equivalent of that is how happy are you with your statement, which tells you about the charges and the fund growth or lack of it.

So we’ve actually said to people, right, front it now, especially we’ve got Ukraine, you’ve had COVID, change the ordering, say to a client just before we get into it, how happy are you with your statement, next one, how happy are you with our service overall, OK, and the third one is, in order to make sure we’re on track, let’s pressure test, let’s understand how your priorities are holding up in light of the recent events, and let’s see how we’re on track and remind you of the reasons and purpose of why we did this in the first place, and then you’ve got that lovely link, which you alluded to, which is oh, remember when we set this up and I put that protection in place around your pension fund which stopped you having 52% tax charge, oh, and remember we made sure there’s not 40% went to the inheritance tax, oh yeah, because people forget because of recency bias. So it’s a really good way to use that three-stage to remind people of the purpose and the things you did to them without throwing it down their throat.

PRESENTER: And you mentioned service there and, Sarah, I think that’s a key thing, in terms of service delivery, what are the main challenges that you’re seeing there and how can you overcome them if you’re an adviser?

SARAH ELMEY: So, Mark, there’s three broad themes here when it comes to challenges with servicing. The first one is around operational really and what do advice firms actually have to do. There’s the actual doing it, evidencing it and monitoring it, and what we find is that there are significant peaks and troughs in activity. So reviews, or next advice meetings as we call them, tend to have quite a spike in activity around times when you have quite a demand for new business as well, for example, at the end of the tax year or the beginning of the tax year, and often the anniversary of when you first invested is when your review takes place or the servicing meeting takes place. So we have these peaks and troughs. So it’s really a challenge to evenly distribute that activity, if you like, over the year and per adviser. Also the number of support people that are needed to help the advisers produce the reports, and we find that advisers have struggled really to service more than about 150 clients, but more recently advisers have got close to 400 clients per year, simply by looking at how they’re delivering their service. So that’s one area.

The other area is around clients and the quality of the client facing output and getting the balance between a post-mortem of the last year in terms of fees and charges and then something that’s future focused and articulates the value of an ongoing service, as Paul was saying there. And we know that advisers are keen to demonstrate their value to clients, but equally clients need to be providing value to the firm as well, picking up on Mike’s point, so it’s really how do you make an unprofitable client profitable by simply looking at the style and frequency of your servicing. And then the final point is around regulation, so producing something that’s engaging for a client, but at the same time ticks all the compliance boxes, MiFID II requirements and the FCA focus on value for money.

PRESENTER: And Mike, picking up on those points, if you’re an adviser, what can you do to improve your performance in this service delivery area?

MIKE SIMPSON: Well, I think that the starting point, there’s most probably three elements to this. One is sorting out the peaks and the troughs, making sure that you’re not concentrating your reviews at specific times of the year, so levelling them out throughout the year, and that’s a fairly simple thing to do. I think that the second thing to do is focus on what you want to deliver to the client. I’m hearing a lot of firms now using the expression user experience, actually coining something from other marketplaces, other sectors to say I actually want to make this feel like a good feeling for them. And we’ve done some work around actually mapping out what that process looks like, so yes what do you actually want to achieve, then look at the process and then look at how the technology can actually help you deliver that process. Lots of people are trying to get it the other way around, look at the technology first, but actually the key thing is actually to look at what you want the customer experience to go through. And the final thing on that is to actually look at the value that these clients are producing to you on an annual basis and, as Sarah has said, the style and frequency.

One of the things that we’ve just been through as a nation obviously and as a sector is to look at how we can deliver that process, that next advice meeting and the servicing meeting to clients, either remotely, and that’s been very, very effective. So do you have the evidence to say these clients should be seen more frequently than an annual meeting because they’re providing you with more value, have you got your ongoing fees set correctly in that particular sector, or should they actually be moved to every other year, a biannual meeting or even a Zoom meeting, so not get rid of the clients, but look at how you can provide that same level of advice ongoing in a different mechanism.

PRESENTER: Sarah, how easy is that to do at this particular point in time, because if I think over COVID and lockdown, we went through a period where everyone said, it’s fabulous, you can do everything on Zoom, and then there was a period where everyone said, I can’t face another computer screen in my life, I need to go and meet people, and all of us have fluctuated between those two extremes. So what if someone said to you, now is a really bad time to decide how I should be engaging my clients because all of us are all over the shop emotionally about this as an issue?

SARAH ELMEY: I think really it boils down to ask the client what the client wants, and there are an awful lot of clients that still want to engage digitally because it’s been so easy for them to do that. Even we know that in some firms clients are going into their offices, but they’re still doing their servicing with their advisers on Zoom or Teams rather than meeting them face-to-face. So I think it’s a mixture of both. You might not just do face-to-face with a client all of the time, maybe just that first meeting is face-to-face and then you do the reviews digitally. So I think it’s really down to what the client wants rather than the advisers making that decision for them.

MIKE SIMPSON: And I think we’ve got to be careful as well from a behavioural bias perspective is that what somebody wants and actually what they need can be two different things. So whilst we absolutely, Sarah and I will always say look you just ask your client, ask them about the style and the frequency, what works best for them. But before you get them to answer, just put a little bit in to remind them of the benefits of digital, remind the benefits of in person and the pros and cons of both, and then you tend to get a far more robust response. Because, let’s face it, clients only value three things with ongoing service. It’s number one, keep me informed but don’t spam me to death, all right, so be relevant with your information when I’m not with you. Number two, can you make sure that the stuff that you’ve put in place for me is delivering as expected, hold people accountable. The only thing that’s changing is how often do you want to see my ugly mug and what’s the style, and whether you’re 80 or 18 that demographic can alter, but normally the older you are and the more complex your affairs or the younger with complex affairs the more that you tend to value more in person, and yet the younger you are the more you tend to value digital and not so often. But as long as you explain what other people like you said they value, does that sound like you, then people are, their decision can be a lot easier, whereas our natural bias could be influenced by what’s happening at the moment just because, as you said, I’m Zoomed out, I’ve had enough of screens, but actually it was quite good, wasn’t it, I could get a lot done and I didn’t have to travel into town and I didn’t have to find a parking space, so, you know.

PRESENTER: Anything else to add on just this point about technology, Paul, and specifically, I suppose, how you use it to interact with clients?

PAUL YOUNG: Sure. So, well, building from what Mike was saying, the first thing we look at is process, and one of the best processes to mirror, I hate to say it, is actually airlines. Think about your check-in process. You know you’ve got your flight, so think of that as when your next advice meeting is, so think well if that’s my advice meeting, what happens a week before, four weeks before, six weeks before. And six weeks before, triggers that say do we actually need to contact the old school providers to get the carrier pigeon and the fax to get all the valuations. Four weeks beforehand, we might say cooey Mark, we’re going to meet up in four weeks’ time, anything you want to talk about. And then you might want to drop in via an app, you might want to use your email, you might want to use the old fashioned thing called a phone, but it doesn’t matter, as long as the process is mapped. And then one week before, you might say I’m looking forward to seeing you next week, here’s a suggested framework, anything we need to check, and get your report done beforehand, and then by the way the other thing is, six weeks after that, putting a little safety net to make sure that the providers have actually done what they’re supposed to have done, there’s been no human error.

Now, if you do the process first, then look at the tech. This is the thing we’ve learnt. We get wowed by tech providers and what we’ve learnt is get your process mapped, what do you want the ideal journey to happen for the majority of your clients and then think of the best way to do it, and what we’re finding is firms calling it operational plug-ins, all right. So they might have their CRM to nudge you and say cooey Mark we’re looking forward to seeing you, they might have their back office system do the valuations, but they’ll use a report writer to actually make it look really nice and bring it all together, or they’ll plug in the cashflow part of it or use the cashflow to onboard the client and remind them of their income and outgoings. So the most important part is don’t get wowed by the tech, go plug-in, and also it keeps the tech providers on their mettle, because they know if they’re not delivering you’ll swap it out for the next best person who’s doing attitude to risk or profiling. So tech is key, but nail your process first and there’s lots of examples of what you can do, then plug-in the most effective technology, not the other way around.

PRESENTER: And presumably this creates a fairly large amount of documentation, Sarah, how do you fit all of that into this process?

SARAH ELMEY: Well, I think, building on what Mike and Paul have already said, I think when it comes to the process, start with the process, when you’re thinking about your servicing, look at the process first, and there will be elements that you’re already doing that you can build on, so advice firms don’t always have to start from scratch. And then with the documents, again, look at what you’re already using and, of course, everybody thinks about the progress report, the report they’re going to give to the client, that’s probably the starting point and what they want to include in that and think about the ordering of that document in terms of the client’s going to be interested in their valuations but we want to obviously communicate that with them and share that with them. The second part would be around the value of an ongoing service and the third part would be the compliance, things all around the charges and the fees, and then in the appendix you can have all the detailed analysis around the funds, pie charts and graphs that clients like. And I think the other thing about documents is that you may wish to send clients some pre-thinking documents before their service meeting so the adviser can then gauge changes that a client has experienced since last time they met, so quite a lot of advice firms are now building that into their process.

PRESENTER: Thank you. Mike?

MIKE SIMPSON: Yes and I think, just building on that, there are three key areas that we look at or that advisers tell us that clients are looking at. One, are they on track to hit their objectives, have they actually got enough to hit their objectives and therefore if they’re not, if they’re off track, what do they actually need to do, so those are the three key things that sit within that discussion, rather than taking it through fund performance and so on, are they literally on track for whatever the objectives. And let’s face it, people’s objectives may have changed over the last two, three years, and we’re seeing a lot of that.

PRESENTER: OK. Now, we’ve talked a lot about fees, we’ve talked about technology, we’ve talked about the clients. We haven’t talked about staff and how you get the staffing level right and motivated. So, Paul, from that side of things, I suppose there’s two ways you can go, you can either have staff who are employed or you can have self-employed. What are the pros and cons of each?

PAUL YOUNG: Well, I think we’ve got to recognise that you can have both. There is definitely a move at the moment with more of the wealth-based firms to move to a more employed mentality. But it’s all a red herring actually, because either way what you’re really talking about is client ownership, and it’s a taxation thing, that’s the main difference. And whether you’re employed or self-employed, it’s as old as the hills, but that sort of a third, a third, a third model of a third for the firm, a third for the adviser and then depending on who is doing a lot of the lead generation support work or whatever, that should be shared appropriately. So if the firm is doing all the lead generation, offices, tech, etc., you’d expect them to have far more of the cut. If it’s the other way around, then of course you’d expect the adviser to have more of the cut.

So I think employed and self-employed is a red herring. The issue really is client ownership, and client ownership, that’s about making sure you understand crystal clear what is it, and client ownership is three things. Number one is the emotional relationship, which will always be, hopefully, with the adviser, the emotional part, but again good firms get that branding such that they love the brand through the adviser rather than just loving the adviser and that’s a very subtle change. The second one is the financial relationship, who owns the finances, the money coming in, that could be you, it could be the firm, whatever, but the really important one, which often isn’t clarified in contracts, is the liability piece, and I’m not just talking about clawback on a protection plan, it’s what if a complaint comes through, what happens if, who’s carrying the buck, who’s carrying the excess on my FOS complaint or the handling, who is doing that. And I think if you can clarify that, that’s key, irrespective of employed or self-employed. But we are finding this whole thing is a move to the words of personal value, rather than just should I be self-employed or employed, it’s about well how do you help someone create their own personal value.

So there are really good firms who are moving to employed where they’ve got share of capital schemes, career progression, really good pension plans, and then you’ve also got share of value, might be self-employed, I need to build it up in order to exit and have a multiple or assets under management, it doesn’t matter, but as long as you think of how do you actually help that personal value, the contracts can sometimes be a red herring.

PRESENTER: But from what you said, does this suggest whether your staff are employed, self-employed or a bit of a mix of both, you need to get it documented and understood by everyone?

PAUL YOUNG: Yes, absolutely, and we’ve, Quilter have done a lot of work. They tried to produce, lovingly, a base framework of contract, but what we learnt really quickly is all firms are different, and all I’d stress to any of your viewers is invest, if it’s just one of you or a subcontractor or if it’s just two of you or if you’re a large firm is pay money with a legal specialist to make sure that whatever contract you’ve got it’s still fit for purpose now. Times change, just make sure you understand about ownership, contract, what if you introduced a lead to that adviser, who owns that one going forward? Take the time, shape it and make sure, absolutely as you said, self-employed or employed, get that contract robustness because it saves so much problems later on, but also helps people really create their own personal value.

PRESENTER: Sarah, what are your thoughts on that, again, picking up in particular on this point of Paul’s, that you can’t just have a very simple contract model and just hand it over, every firm, every person is different?

SARAH ELMEY: Yes, so I think that there’s three things that you need to think about with the contracts is that, is it up-to-date, is it valid and does it reflect what you actually want to happen in your business, and that’s for employed and self-employed advisers, as Paul says, so it really is worth investing some time in looking at contracts so you avoid any confusion and time further down the line when advisers want to retire in your business and you’re going to take over the clients.

PRESENTER: You said up-to-date, how often should you be going back over contracts, even for staff you’ve had for years and you know really well or you think you know them really well?

SARAH ELMEY: Well, I think we want to encourage that people have regular conversations with the person in their business that’s mentoring them, so I would say at least once a year.

PRESENTER: OK, thank you. Mike?

MIKE SIMPSON: I think there’s the legality element of the contract, but I think one of the things that is coming to the fore now and there’s been a lot of research into it, is what we call the psychological contract. It’s the contract, setting the expectations of, be they self-employed or employed advisers or other support staff within your business, and making sure that they understand what your expectations are of them and the contribution that you expect of them. But the other thing is, and this is where some of the business owners are now waking up to this, is actually there is a quid pro quo on this, which is the expectation from the adviser and the contribution they think they’re going to get or should be getting from the employer. Yes?

PRESENTER: Yes, OK. I suppose the other part of this, Mike, is, we’ve talked a little bit about contracts, but it’s working out what the right rate of pay is in the first place, so any tips there?

MIKE SIMPSON: Well, again, it comes back down to Paul’s point about the third, the third, the third concept, it’s where are you setting that benchmark and what are you actually asking the adviser to do, because it could be a largely servicing role of an existing client bank or you could actually be expecting them to not only service an existing client bank but actually to go out and find new business, or at the other end of the spectrum and the old concept was a hunter as opposed to a farmer and I think we’re beginning to see a lot more focus on there are opportunities out there that advisers potentially are missing because they are quite comfortable where they are. So the problem then becomes how do you make sure that your business is growing, one of the next topics in this series, how is your business growing from acquiring new clients and new customers. So there is no one size fits all, there are similarities but there are uniqueness between firms and between the kind of pay systems that they put into place.

PRESENTER: And, Paul, just a final thought on that. There’s been a huge stress in all of this conversation about you go back, don’t just take something as a simple assumption, go and have a look, has it delivered value. When you go and do that as a firm, have you ever found people who’ve been quite surprised, they maybe thought the hunters, the glamorous people hunting the new clients is where all the money and profitability was, but actually it’s been the farmers, the people who can grow existing business 5% a year, just compounding away, who are actually the real earners for a business?

PAUL YOUNG: Yes, absolutely, and also we’ve had the reverse, so yes, there is a tipping point and there is a cost of acquisition of new clients, etc., etc., and also you tend to find that a hunter was more demanding of their share of revenue because they’re doing, as we said, that third, a third, a third model, they would argue I should be having more of that. But there is, there’s percentages, but there’s also gross turnover, but we are finding this glass ceiling, and I think that’s the key, going back to the servicing piece, is I think done well with firms we’ve proved that you can get rid of this glass ceiling of only looking after 150 clients, you can move to 400 with the processes and technology that we’ve used with firms, and that’s reinvigorated people. So that profitability becomes really quite excited again, the adviser can look forward to going and getting more new business and I think that could actually be the solution to the advice gap, because there’s enough advisers. There’s 26,000 advisers, depending which report you look at, but if you could triple the amount of people that people could look after, clients today and not put extra stress on the system for the adviser, that is a massive game changer and that can be reflected in the rates. And what we’re also finding is firms are - how can I put it - tying the amount of ongoing revenue in wealth to how much new flow goes in. So they are saying look if you want to sit back and monitor and be profitable and just maintain it, that’s cool, but you’ll get a far more healthy rate if you are attracting more new clients in, so that’s a definite move in the market.

PRESENTER: We are pretty much out of time, but I want to finish by asking each of you, out of everything we’ve talked about today, if there was one key take-away, one action you could take now that has disproportionate benefits if you’re an adviser, what would that be? Mike, can I come to you first?

MIKE SIMPSON: I think it’s about understanding the value that each household provides to the firm itself. And by that I mean what is the income level that a husband and wife or a partnership provide to the firm, and then off the back of that understanding what your service proposition should be in terms of the style and frequency.

PRESENTER: Thank you. Sarah?

SARAH ELMEY: I think the client facing fee calculators. It really helps advisers talk about fees with their clients, it provides credibility around the fees, transparency, and it also prevents clients or they’re discouraged from negotiating on the fees as a result.

PRESENTER: Paul, somebody watching this who’s a bit sceptical might say that all sounds great in principle but does it work in practice, have you got any numbers to back that up?

PAUL YOUNG: Absolutely. So, first of all, if you take the client fee calculator that Sarah’s talking about, without any training whatsoever, we had a look at a typeset of firms and they just by simply using a fee calculator with their current terms of business, no extra work, 17% increase in initial fees. With firms that we’ve worked with to help them articulate the value, the average rolling 12 months versus the previous 12 months is up 36%. Now, if you look at some of the Lang Cat research, people are saying initial fees are reducing by, on average, 20% per year. If you want to buck the trend, get yourself a client fee calculator for initials. Second thing though, ongoing service and that’s where we’ve had a massive impact. On average, that’s a 52% increase on ongoing fee and value by using household type of views and calculators and thinking about the style and frequency of that service. So yes I have got some of the stats and luckily it’s gone the right way.

PRESENTER: We have to leave it there. Paul Young, Sarah Elmey and Mike Simpson, thank you. And thank you for watching. Do stay with us. We’ve got some information in just a second on how you can use this as part of your structured learning, from all of us here, goodbye for now.
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