As a result of all this, what we are seeing is wealth managers taking control over product pricing rather than the product manufacturer. And this is resulting in a move away from what Jason Butler, founder of Bloomsbury Financial Planning, describes as “the otherwise relentless focus on generating assets under management”.
Take control
One per cent of AUM always seemed fairly arbitrary as a charge for a wealth manager to make of a client, with the emphasis being to simply earn 1% of a higher figure to increase the firm’s revenue. Firms are still struggling about what this figure should really be, especially as mentioning 1% of AUM as a cost to a client does not sound too scary but mentioning £10,000 as a fee does.
To take wealth management/financial planning to the next level and help it sit alongside law and accountancy as a genuine professional service, firms need to concentrate on the key word of ‘control’ – control of pricing, control of advice services, control of investment propositions and control of the relationship they have with their client.
What Butler and others are now focussing on is how to build a sustainable financial planning and/or wealth management operation from revenue earned with a business model that does not depend solely on increasing assets under management.
What they are struggling to do is decide what the fee structure should look like, what the market rate for different levels of service is, what their non-AUM business model should look like, what is a fair amount to charge a client.
Non-revenue priority
While they work through this, wealth managers also need to tackle the non-revenue earning aspects of their business to become an even more professional service – adding the possibility of then charging a premium for their more professional service.
Thankfully some of this work has been done already as, while the market develops to the point where some of these turn from ‘unknowns’ to ‘knowns’, Standard Life and NMG Consulting have identified key characteristics that make a successful wealth management/financial planning business.
How many of these does your business have and where do you stand on the spectrum between struggling to successful via competent?
- Strong leaders with a consistent vision, who set clear direction and expectations. They are not dictated to by the advisers in the firm;
- Employees who put the firm’s interests before their own. Their priority is to serve the clients to the highest possible standards;
- The structure of the business follows its strategy. The successful firm has an operating model that is flexible and staff understand change is constant, why that is, and where their role fits into it;
- Clarity of what the business is and who it is aimed at. Focus on understanding clients, potential clients and their businesses, and work out how to position themselves in the clients’ world;
- Regulatory change is embraced. The best firms even take a bet every now and then, making changes to stay one step ahead of the regulator and pre-empt future changes – how many wealth management firms make a huge play on the fact that they were fee-based years ahead of RDR?
- Clear, regular and open communication with both clients and employees. Be honest and tell clients about more than just their financial planning/investment needs to encourage greater loyalty;
- A culture of continuous improvement and operational excellence. Continually evolve and develop as standing still is not an option.
One fact I will leave you with – admittedly from a small base of the 25 firms NMG Consulting surveyed – is 89% of revenue comes from only 11% of a firm’s customers. Even if 89% is too high a figure to be representative of all 25,000 financial advisers in the UK, this means there are an awful lot of clients not contributing to a firm’s revenue. What is the market price for a service to clients who don’t earn you anything?
