The Practice Management Team Welcome to our Practice ...

July 2011

Welcome to our Practice Development newsletter! With only 550 (or so) days to go until the implementation of RDR, we plan to bring you monthly ideas and articles to help your transition as smoothly and profitably as possible In this initial edition, we explore the fact that there will be life after RDR and that we need to keep an eye on this longer term horizon, as well as taking a quick look at the key concepts underpinning the client segmentation process It’s very easy to get caught up in our own world and issues, but the world is a small place and it’s getting smaller. threesixty is very active in researching best practice around the world and is involved in a number of working groups. Interestingly, the world is also looking at the UK. In a meeting with senior officials at the Australian Treasury, I will be feeding back some of our thoughts and experiences of the UK and wider markets. Contrary to popular belief, it turns out that Australia is not really ‘ahead’ of us at all! We will feedback more details from this work as it arises.

Phil Billingham ACII CFP Chartered Financial Planner Head of Business Consultancy, threesixty services LLP

The Practice Management Team Phil Billingham

Susan Jordan

Phil joined the Financial Services profession in 1982. He has since worked extensively within the IFA and Financial Planning professions. Phil is both a Certified Financial Planner and a Chartered Financial Planner.

Susan had been in the financial services industry for 9 years before joining threesixty in September 2005 as part of the Client Relationship team. As Client Relationship Manager within threesixty, Susan had been assisting firms with the RDR on an ad-hoc basis.

Amongst other industry positions, he is currently a Director of the Institute of Financial Planning in the UK and is a former Director and Vice-Chairman of the Society of Financial Advisers. Outside the UK, he has experience of the American and South African Financial Services markets. This includes speaking at the MDRT conference in the USA and at the FPI conference in South Africa. After 11 years of running his own consultancy, in August 2009 Phil joined threesixty Services LLP as Head of Business Consultancy.

The appointment of Phil Billingham and the increase in focus on Business Consultancy, meant that it was a natural transition for her to become involved in this area. In October 2010 she was appointed as Business Consultant working within the Business Consultancy Department. She is now involved in assisting firms generally on business consultancy and also undertakes Benchmark Reviews, Practice Development and Supervisor workshops.

threesixty services LLP Eden Point, Three Acres Lane, Cheadle Hulme Cheshire SK8 6RL Tel: 08707 360 360 Email: [email protected] Fax: 08707 360 361 www.threesixtyservices.co.uk

July 2011 – Practice Development Newsletter – Page 2

Practice Development Services Historically, the support offered was to threesixty clients only. As we have developed workshops and support material, these are now being offered to non threesixty clients as well. The services offered fall into three main headings: (1) Open workshops: • Practice Management Workshops • Supervisor Workshops • Supervisor (refresher and advanced) workshops

The position we find ourselves in is that, as a profession, we are faced with a range of future business models. It’s important to remember that these are not better than each other – just different. The key word here being ‘Business’! We are all in the business of manufacturing advice - at a profit and we must remember that this includes managing our liabilities. The fact remains that many IFA firms are where they are now by accident. We often see that firms have different internal models and often a lack of strategic direction. So, taking these key issues in turn:

(2) Bespoke workshops: All the above workshops are designed and delivered tailored to a particular firm. In addition, we have developed and delivered the following workshops: • Transition to RDR • Client Management skills (3) Benchmark Audits and Consultancy These, as you would expect, have focussed on the transition to RDR, but also include: • • •

Valuing firms for merger, exit or sale Transition to a Financial Planning Model Transition to Discretionary Management permissions

The first one is increased Consumerism and Globalisation. In essence this involves higher expectations of Products and Services and the ability to purchase from anywhere – the rise of the internet. This is all worth an article in its own right, but can I refer you to the video ‘Shift Happens 2’ on Youtube, and ‘The Earth is Flat’ by Thomas Friedman? In recent years we have seen the increasing democratisation of information via the internet. You can ‘Google’ anything, and clients can find out any facts about any subject in 20 minutes. But we have to be clear that Information is neither Knowledge nor Wisdom. So we must ensure we add value to our clients through wisdom and judgement, not just knowledge and facts.

To find out how we may be able to support you and add value to your firm, contact Hollie Jackson at [email protected] or call 08707 360 360

Linked to this process is the increased Commoditisation of Products. As they become more similar, so we will see the distribution of simple products such as Term assurance / ISA’s and Mortgages from Tesco’s and Amazon. They are much slicker at distribution of products and, importantly, are trusted by consumers.

The 5 key Issues facing the IFA profession

Which leads us to our next point - Trust and perceived value.

Reading some of the industry blogs, you would think that the 5 issues facing the Profession were RDR, RDR, RDR, RDR and RDR! Without ignoring the RDR, can I suggest that there are more profound and strategic issues facing the profession? Indeed, you could argue that some of these issues are driving RDR, rather than the other way around. Before looking at these issues in some form of order, let’s start with a look at the future – or is it futures?

We know that consumers value: • Our advice and their relationship with us • Ongoing service - if it’s appropriate • Transactions and implementation But how did we / do we get paid? • Transactions – mostly • Service - a little bit, sometimes • Advice - historically not at all



So what did this teach consumers about our value? Not much! Advisers need to spend more time where clients perceive value and we need to ensure that our KPI’s and systems reflect the required activity. We then need to ‘Industrialise’ our processes where the client does not perceive value. In other words, use technology to deliver ‘Hygiene factor’ tasks cost effectively. But we also need to educate clients to value the tasks that we carry out for them that DO add value. Why is it that clients do not value what we do – is it about what is ‘Tangible’ and ‘Intangible’? So is our job to ensure that consumers see a ‘Tangible’ value in the ‘Intangible’ advice process? The third challenge is that of Succession and Recruitment. The myth is ‘The average age of an IFA is 54’. In reality, Advisers are ‘Mature’, but no older than other professionals running a Practice, such as Solicitors, Accountants or Vets. I would suggest it’s the shape of the career that is the problem. We need to attract career minded younger people. Graduates in other words. But there are barriers. Graduates don’t have client banks. Graduates don’t really want self employed commission only roles. But equally Graduates know they need to learn before they earn. We need to consider the roles involved in a practice, and think about team working and job roles. In short, looking at the underlying structure of an IFA practice, taking a task driven approach. This looks like the following: • • •

Planners are responsible for strategy, have the main client facing role and the most interaction with introducers Para-Planners prepare the plan, carry out research and put together cashflows, but still have substantial client interaction Administrators act as PAs, but still have some client contact

In short, the classic Financial Planning Team. An issue that is only just appearing on some IFA’s radar is that of Intergenerational Transfer of Wealth. In the main, advisers are usually in the ‘Decumulation’ game. In other words, clients are trying not to run out of money before they run out of life. If we are successful, there will be money ‘left over’ at death. This implies an intergenerational transfer phase. So what strategies do we have when dealing with the transfer to ‘Baby Boomers’ and ‘Generation X’?

When do you have your first contact with the heirs? When they have invested – or have spent - the money? Perhaps with their Bank? One potential issue is what is the age gap between you and these new clients? How long can you promise to look after them? The fifth and last issue is the perennial one of building a Capital Value when exiting the business. In essence, you can’t sell, and run, and own the practice. So who can run your practice when you go? For most IFA firms this exit is almost always as a result of a sale, and, in turn, this almost always results in a closure of the firm. This is an article or book in its own, but the key issues are: • • • • •

What are we selling? The ‘Clients’ or a ‘Brand’? Are we selling the income stream or a profitable business? Do we ‘own’ the clients – and hence the income? Do we understand where the income is coming from? Do we have a good cultural match with potential buyers?

Summary There is some concern that some IFA practices are getting overly focussed on the deadline of December 2012. Whilst this remains a critical deadline, it is vital that IFA’s keep an eye on the larger issues coming over the horizon

I’ve segmented my clients – now what? Client segmentation has become one of those phrases that’s the answer to all the questions posed. “How do I increase the value of my business / make more money / deliver a better client service?” The answer is always appears to be ‘Segment your clients’. And, to be fair, there is a great deal of truth in that assertion. But what happens then? What do you do after the clients are segmented? And that challenges our normal operating systems ?? , and challenges why we are segmenting clients in the first place. So let’s take that question as our starting point.



I agree with the statement in the book ‘The One Minute Manager meets the Monkey’ that says ‘There is nothing so unequal as the equal treatment of unequals’. To treat everyone the same is actually unfair and that drives a lot of our TCF planning. Does this mean treating everyone the same drives a lot of our TCF planning but it shouldn’t, or that differentiating a service proposition drives a lot of our TCF planning?

5. How can we deliver that value at a lower cost? • Systemise the process • Using IT and technology • Templates 6. Does our Monitoring and Risk Management regimes measure and monitor our delivery of service? • •

What this means is that the purpose of ‘Client Segmentation’ is to deliver a service for clients that is appropriate and valuable to them, whilst maintaining a commercial profit margin for us. So, we have two competing pressures. Delivering and maintaining high service standards, whilst cutting the cost of delivering the services that the client values. So that means looking at the following: 1. What value do we deliver to clients? • Financial Planning? • Expert technical Advice? • Access to valuations and information? 2. What do clients actually value? • The relationship • Simplification of paperwork? • Access to technical expertise? 3. Do 1 and 2 match? • If not – can they be brought in line? 4. How much does it cost us to deliver these services? • • • •

Our cost Staff cost IT and technology PI and risk?

Do our KPI’s measure the things that matter? Or just ‘Compliance’ type KPI’s - Persistency - Product spread

So what we are seeing here is that client segmentation is not just a starting point, but is probably an iterative process. It is partially driven by our ‘Client Proposition’, but also challenges our ‘Client Proposition’. It then requires us to rethink our monitoring process. We need to ensure we can measure, monitor and manage key activities: •

Have clients had the right level of service delivery? In short, if we planned to complete 100 review meetings with A and B clients in March, have we got systems in place that tell us whether these took place and if so, what the outcomes were?

•

Do we measure the cost of delivering the services? Has this changed?

•

Do we measure the benefits of delivering this service? What client retention / additional income can we attribute to this client proposition?

A well thought through ‘Client Segmentation’ process is always a good start. But it’s what you do next that adds value to both your Practice and your clients.



Practice Management – What our clients think “ Our client profiles are finished & will be sent tomorrow, our investment philosophy after this Friday. Perhaps more interestingly we have used the story board as the initial basis for reporting to new clients in terms of who we are & what we will be doing for clients. The result is 2 new clients within a week one an investment of £440,000, the other £500,000, both at our new charge schedule. The one case alone more than covers the charges we have incurred by contracting threesixty to date & I always say ‘the proof is in the pudding’, which has now been amply demonstrated, so yet again a big thank you, we’ve not finished our proposal, but generated rather more than we would have charged for similar cases in the recent past & with our proposition clearly defined for the clients to understand “ Mark Curtis DipPFS, Managing Director =========================================================================== “ Congratulations to both you and Phil on an excellent programme which perfectly hit the RDR sweet spot to allow us to navigate the process up to 2013 and beyond and provide us with the tools we need to improve our business. Also, thanks to Just Retirement. I’ve just sent them an annuity application which will help pay for the shortbread on the first morning “ Brian Corry, Partner, Graham Corry Cheevers

Open workshops in the fourth quarter of 2011 As you would expect, we are reasonably busy providing support to threesixty clients, but do intend to run open workshops in the fourth quarter of 2011. These will be focussed on key points of Practice Development, especially dealing with issues such as developing a robust Investment Proposition, and delivering profitable Advice. This will include looking at the skills required in the process.

One other area that may be of interest is the next round of Paraplanner Forums planned for September. Run in conjunction with the IFP and The Paraplanner.com, these are proving to be massively popular

We will keep you aware of these plans, but please contact Hollie Jackson on [email protected] to register your interest in the first instance

• 15th September in Birmingham

• 6th September in Manchester • 7th September in London City – also in conjunction with Aviva Investors

• 26th September in Edinburgh Attendance is open to all Paraplanners, and is free of charge, although some venues will have limited space available, so early reservation is recommended. To reserve a place, and for further details, please contact Hollie Jackson at: [email protected] or 08707 360 360

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