Money always moves when life is in transition

Credit to Stephen Browne, Voyant

At the Power of Financial Planning conference in the UK last year, Mitch Anthony said, “Money always moves when life is in transition”. This quote really hit home as a central theme of the life changing impact that you can have as a financial planner, and how you are so powerfully positioned in comparison to other professionals who are employed by your clients.


All our lives go through a series of “transitions”

While of course we can trace life events (or instead call them transitions) right back to birth, for the sake of financial planning we can start with transitioning from being a student to working. Transitions are those significant life events that cause a relatively significant change in your life. Each of these changes will have a fundamental impact on your client’s financial situation and include the likes of,

  • A new job: Usually this will result in an income increase (hopefully!) and probably a change in benefits.
  • Marriage: A very significant financial change where your client and their better half marry their fortunes together. Also now their financial goals and needs substantially change.
  • Moving House: A new home usually results in new debt and changed regular expenditure.
  • Children: Apart from the obvious immediate costs, your client’s thoughts will soon turn to increased living costs and future education costs etc.
  • Retirement: A significant financial event as the income tap turns off and it’s time to live off savings.
  • Death: This could be your client’s death or the death of their spouse or parent. Each of these events will have a significant financial impact.
  • Other events: And then there lots of other possible events – buying a holiday home, a significant gift for children, the world tour, winning the lotto or maybe a divorce! Whatever it might be, there will be a significant financial impact.

The point to remember is that every time there’s an event, money moves. Think about it. The question is, will you be the one assisting its transition?


Transitions deepen relationships and create opportunities

The good news for planners using cashflow planning software such as Voyant is that you are the key professional relationship for your clients before, at and after each of these transitions. That is because you are the person managing the client’s timeline, preparing for each of these life events and then helping them at the time of transition. No other professional enjoys this trusted position. Your client’s solicitor is consulted when the event is looming and they need legal advice. The same applies to the client’s accountant – their expertise is sought as the event draws near.

However using cashflow planning, the financial planner is the one that is helping to plan for these transitions. You are the one helping your clients to envision their future life, what they want and how they want their life to plan out. You are capturing all of these goals, desires and events in their timeline. You then help them draw up a financial battle plan to empower them to life the life they want. So, when they actually come to that major life event, their financial situation is an enabler rather than a problem. You are the person that is helping them develop a clear financial strategy for their life, giving them clarity and confidence to live a life free from financial anxiety.

Isn’t it funny that while products will be needed as a result of many of these events, these are simply vehicles to drive the plan. The value that you have provided is helping your client to live their life, to move their money wisely in preparation for and during each of the transitions throughout their lives. Is it the product that your clients will be thankful for or the realisation of the life they always wanted to live? I think you know the answer to that one… The added benefit is that you will also be plotting future business for yourself as your client plans for each of their life transitions. As the financial life planner, it’ll be you who will be there when the money moves.

What impact would 0% asset management fees have for advisers?

Are we seriously talking about 0% asset management fees? Well maybe not yet in Ireland, but Fidelity recently announced the introduction of two core equity index mutual funds covering the U.S. and international markets without any management fee.

If we saw a similar development in Ireland, what would it mean for financial advisers? And even if we don’t, what impact will the downward pressure on investment manager fees have for advisers?


A forensic analysis of fund management charges by clients

The two big asset manager stories over the last year or so were first of all when Vanguard announced a flat 0.3% management fee, regardless of how much an investor has in their account. This fee includes access to a CFP professional who will provide financial planning and investment advice. This was followed this summer by Fidelity’s announcement of 0% fees on two of their funds. These price developments will inevitably move closer to Irish shores over time and when they happen, they will be (rightly) trumpeted loudly by providers. This in itself will bring a keen focus from clients on the level of fees that they are paying into their existing funds.

We are certainly not advocating that fund management fees are the only factor for investors to consider – far from it in fact. But should fees reduce substantially, the reality is that investors will more regularly raise this issue with their adviser who will need to be prepared. The adviser will need to be crystal clear about their rationale for guiding clients towards higher charge funds. Higher cost funds make sense for many clients – you just need to be ready to clearly articulate the reasons!

The bottom line is though, fund management fees are likely to come under ever-greater scrutiny.


A lower overall fee creates adviser opportunities

One of the most common refrains I hear from advisers being unable to charge 1% (or even 0.75%) trail for their own services is that the current fund management fees don’t allow it. They argue that when you add 75/100 bps on to  a high management charge, that the overall charge is simply too high.

If the fund management fee went to 0%, surely this problem goes away? Now the only charge that would apply would be your 0.75% / 1%, which would not overly impact the returns achieved by clients. Could you charge a higher trail then and justify it to your client?

I’m not so sure that a reduction in fund management charges would be the silver bullet that some think it might be. The argument of fund management charges being too high sometimes hides an underlying issue of some advisers being unable to engage and convince clients in the value that they themselves (the adviser) are adding.


Can you articulate and demonstrate your value (and justify higher trail)?

How do you actively demonstrate to your client that you are worth paying 1% per year to? How clearly do you set out to your client the value that you add and the difference that you are going to make in helping them achieve their lifestyle and financial goals? How do you demonstrate the expertise that you bring to the table to help them, and both the quality and amount of work that you do on their behalf? How do you convince your client that they are fortunate to have found you, and that your 75/100 pbs charge is worth every single euro?

If you are not able to do this, even with reduced fund charges your client will still baulk at the charges. Now they will realise that most / all of the ongoing management charges are going to you and will really want to understand what they are paying for. Your fee won’t get “lost” any more in an overall charge.

To be able to articulate and demonstrate your value, you need to take a step back from your business and spend time identifying the value that you add and the difference that you make to the lives of clients. You need to articulate that value, your advice methodologies and be able to demonstrate the structure and rigour of your approach.

Only then can you justify your trail amount, irrespective of the direction of fund management fees in the future.

What can we learn in Ireland about adviser charges after RDR?

RDR, the Retail Distribution Review in the UK – do you remember how it was to herald the end of the world for advisers in the UK? So what has actually happened, and what can we learn in Ireland from it?

I came across reports about 2 pieces of research that were carried out in 2017. The first was research carried out by the Financial Conduct Authority (FCA), which examined the different charging structures used by advisers. The second piece of research was carried out by New Model Advisor and looked at how much the Top 100 firms (as decided by them) actually charge their customers.

Interesting stuff, and I think there’s lots to learn for us in Ireland…


Fund based charging is alive and well

RDR was implemented in January 2013, and initially it was expected that commission as we know it would become a thing of the past in relation to pension and investment business. However trail commission has remained in place for legacy business written before RDR, and also the concept of “adviser charging” was introduced. This differs from traditional commission in that product providers, while being able to facilitate a payment of the adviser’s charge by deducting it from the investment, can only do so after obtaining and validating instructions directly from the client. So the adviser has to be able to articulate their proposition and justify their charge.

Now whether the adviser is paid by adviser charging or by fee, there is more focus on the quality of the adviser’s proposition and greater transparency of the charge amount.

So has this changed the structure of payments; whether advisers are being paid hourly rates, fixed fees or ad valorem (% of investment) fees?  Well not really according to the FCA research.


Type of charge

Number of firms

Initial charge Ongoing charge
Charge per hour 1,663 1,259
Percentage of investment 4,130 4,362
Fixed fee 1,971 1,215
Combined structure 905 799


So the majority (by some distance) still utilise the ad valorem fee basis, more than all of the other methods put together. Even more interesting, about 80% of the payments to advisers (by value) are actually collected via a provider / platform. This suggests that even when fixed fees / hourly charges are agreed, in many cases the clients prefer the fees to be taken from their investments rather than actually writing a cheque.

However there is also a sense that higher levels of one-off fees are being charged for one-off pieces of work, rather than the more blunt ad valorem basis. This makes sense – charging clients higher one-off fees for once-off complex pieces of work.


What level of advice fees are being charged?

The New Model Advisor research is very interesting in terms of the actual amount of fees being charged. Some of the highlights of this research include (based on a client aged 40 with a £250,000 portfolio),

  • The average ongoing adviser charge is 0.87% p.a.
  • The total average charge for clients, including the adviser charge, platform fee and fund charge is 1.78% p.a. – the advice fee represents just under half of the total fee charged to the client.
  • 38% of firms charge 1.0% p.a. of AUM
  • The range of ongoing fees is 0.41% to 1.25% p.a. Many advisers were shocked that some of their peers charge as little as 0.41%!
  • Only 7% of firms charge over 1.0% p.a.
  • Fees are increasing overall as advisers are doing more work for clients.


What can we learn in Ireland?

I think there are a couple of learnings for Irish advisers. In truth, each of these probably deserves a full article on their own! But here is a brief synopsis of what I take away from this research.

  1. The ad valorem model as charged in Ireland by many advisers is consistent with practices in the UK. While it’s not perfect, and has some obviously conflicts, clients understand it and see it as an alignment of interests.
  2. Clients in Ireland generally prefer adviser fees to be deducted from their investments. Again this is consistent with our nearest neighbours. So what has RDR really achieved, beyond potentially greater transparency of fees?
  3. Irish advisors are often undercharging! I’m still amazed that many advisers still believe they can / will service a client properly for 0.25% p.a. What’s the reason for this?
    • I’m often told that our base AUM charges are usually higher. Is this actually true when we see the average non-adviser (platform and fund) charges at 0.91% in the UK? Does this stack up as a reason in Ireland, except possibly when some of the more esoteric funds are being used?
    • Or have some advisers in Ireland not developed enough clarity, confidence and capability to communicate their proposition, in a way that demonstrates the incredible value you provide to clients? 

Food for thought…

For me the overall takeaway for advisers is obvious. Develop crystal clarity around your proposition and the tools to communicate it effectively and relentlessly. The confidence to charge more will follow.


What’s driving the growth of Future Cashflow Planning?

Earlier this month I had the pleasure of working with some of the leading financial advice firms in United Arab Emirates over the course of a couple of days in Dubai (the photo is of the VERY impressive Burj Khalifa – the tallest building in the world today). My involvement came about as part of a brilliant programme developed by Zurich International Life to help advisers in UAE prepare for some major changes that will impact their market, probably in the not too distant future.

The Insurance Authority in UAE has flagged some substantial regulatory changes, of which the final details and dates are yet to be clarified. However all the consultation papers to date point to significant reductions in commission levels on products sold and restrictions on indemnity terms that can be offered, along with a number of other changes. The changes will result in better outcomes for consumers, however the changes also create enormous challenges for advisers.

So what has all this to do with Future Cashflow Planning, I hear you ask? Well advisers in UAE are looking at a possible drop of more than 50% of revenue when the regulations come in. It is a market where advisers today are largely remunerated by commission only, and the impact of the regulations mean that relying purely on product sales in the future will see advisers simply be paid less for the same amount of work. They really have two choices,

1. Write double the amount of business they’ve been doing to date or

2. Broaden their proposition beyond products, add more value to customers and charge accordingly.

The second option looks far more appealing to me.


What might this proposition look like?

Advisers in UAE are fortunate that they can look at other markets around the world that have transformed in recent years. If they look at USA, Australia, New Zealand, UK, Holland and of course here in Ireland, they will see a common trend. That trend is towards progressive advisers providing a lifetime financial planning service, where the client’s lifestyle aspirations for their whole life are identified, and then a financial plan is developed to enable the client to achieve that desired lifestyle.

Sitting at the heart of this is Future Cashflow Planning, giving the client a snapshot of their financial capability for every year of their life and enabling the adviser to answer those big questions for the client,

• Are we always going to be ok?

• Will we have enough money to live the life we want?

• Can I stop working today?

Offering this deeper and richer proposition to clients will potentially enable advisers in UAE to charge for their expertise along with / instead of charging for the products that they arrange. This has certainly been the trend in other markets. While of course this deeper and richer client proposition will not be appealing to every client, there is a large cohort of clients in every market to whom this service will appeal.


It’s not all about regulations though…

In Ireland it wasn’t regulatory change that heralded the growth of lifetime financial planning and the use of future cashflow software. Instead it was as a result of ambitious advisers watching the trends in other markets (particularly the UK) and seeing how the leading advice firms in those markets had extended their proposition into lifetime financial planning. It was clear that this deeper and richer client proposition results in a far more engaging and valuable service for clients.

Lifetime financial planning, built on the foundation of a future cashflow plan has been the single biggest shift in the advice market in Ireland (and these other markets) for quite a long number of years. It has redefined the value offered by financial advisers, and has enabled them to really establish themselves as a trusted professional in the eyes of their clients.

And in Ireland, the rewards have followed for advisers. They enjoy more valued and durable relationships with their clients, who are happy to pay for this advice year after year. Whether this is paid by fee, retainer or trail commission is not really the point – these are all simply methods of payment. The key point is that clients are willing to pay for advice year after year, irrespective of whether product transactions happen or not.


That has to be good news for advisers further afield, such as those advisers in UAE who are facing regulatory change. Commission reductions on products are of course a challenge. But the opportunity is there to broaden the client proposition, add enormous value to clients through the provision of lifetime financial planning and charge accordingly for this.



Image Courtesy Flickr – Tom Sespene – wajortom34

What do you have (and want)? A business or a lifestyle?

The dream of many advisers when starting out on their own is to build a successful business that they will one day pass to a successor or sell for a big sum of money to secure themselves in retirement.

For a smaller number, they simply want to operate as a lifestyle business, generating enough cash to live comfortably in the present. They don’t want to run a business; instead they are happy to stay operating as a financial advice practitioner. They are operating more like traditional insurance salesmen, living from year to year, with no great growth ambitions. There is nothing wrong with this as an approach if you have decided that this is what you want!

However there are quite a number of advisers in the market who very much want the former situation (to build a business), but in reality are very much still operating like the latter (still working as a practitioner).  So what is it that stops them from successfully transitioning into being a business?


No strategy or plans in place

One of the characteristics of advisers who are living from year to year with little clarity of where they are going in the future is a lack of a strategy and firm plans – ones that are written down. These advisers may be operating very successfully today, but are not really focused on the future and what they are actually trying to achieve. Good strategy and plans take reflection, challenge and commitment. Without these inputs, it’s very hard to clarify and chart your future direction.


Propositions tend to stay the same

It may be the consistency of your approach that your clients love in dealing with you – knowing what to expect, being happy with the service given. However times do change, markets and ways of working evolve, there are areas of improvement always available to you. First of all, you need to be able to clearly articulate your proposition. And then you need to review it on an ongoing basis, tweaking it and making improvements as opportunities emerge. If you don’t seek these out, competitors that are on a hungry growth path will develop more future proofed propositions and will inevitably overtake you.

This will leave you operating as you’ve always done, maybe generating sufficient income to meet your needs today, but remaining pretty static in terms of building a business.


It’s all about you!

Successful practitioners tend to be running at 100 miles an hour, usually 6 days a week! Earning a lot of money but knowing that without their input, there really is no business. This can leave them highly stressed, prevent them taking holidays and often leaves them quite dispirited. If they get sick, everything pretty much grinds to a halt…

A business on the other hand has the principal pulling the strings. Everyone else (hopefully) is very busy – seeing clients, managing the processes, dealing with client queries. The principal is still active, but it is in more of a strategic role – setting direction, finding new clients, advising high value clients only. In this scenario if the principal gets sick, it’s not game over. The business is robust enough to continue.

Another attribute that I see in businesses that have evolved from advice practices is in the quality of the people brought into the business. They tend to be of very high quality, really lifting the whole game of the business. And then there is a real commitment to invest in these people, keeping them at the frontier of best practices in the industry. Of course if you ever want to sell your business, for it to be attractive to a potential buyer, the higher the quality of the people around you the better.


Poor financial management

Another attribute of practices as opposed to businesses tends to be in the area of financial management. The former tend to have low / no reserves, regular cashflow challenges and poor financial management practices in place. Successful businesses on the other hand tend to excel in all of these areas. Earnings are at a level that the business can comfortably afford, there are strong reserves in place and constant visibility of all of the important financial metrics. All of these help in building a sustainable and eventually valuable business.


Where are you today? Are you running a lifestyle practice or a business? And more importantly, where do you want to be in the future?

Can niche strategies work for financial advisers?

This is a question that occupies a lot of thinking time of many advisers today, as they contemplate their future client acquisition strategies. While we are seeing some advisers setting minimum hurdle sizes with new clients (either in assets under management or agreed fee levels), let’s be honest, many advisers are generalists, welcoming any prospective clients into their business. So it’s a valid question – is a niche strategy a viable business model for advisers?

I believe that if carried out in a very structured way, it can be a very viable strategy.

Let’s start with a definition of niche. One I came across described it as, ‘denoting or relating to products, services, or interests that appeal to a small, specialised section of the population.’ The scary part in reading this is the piece about the “small, specialised section”, as this leads people to think that their base will be too narrow to make it sustainable.


Niche strategies can make life easier!

I tell this from personal experience. When I decided to strike out on my own 6 years ago, this issue was the one that gave me the most headaches. Would I concentrate my proposition and ultimately my sales & marketing efforts only on financial advisers? Or would I offer my services to any client that I could get?

I went for the niche strategy, focusing my efforts solely on financial advice firms. My target audience was immediately narrowed to only hundreds of firms, rather than tens of thousands of potential customers. That was scary.

But what was far easier was connecting with this group. Rather than trying to appeal to everyone, and probably not connecting with anyone, I could focus all of my efforts on a specific group of people. This made it easier in developing my sales propositions, writing website content, producing newsletter and blog articles. I can communicate with a clear target in mind, and my messages as a result are a little more personal to my audience. On the other hand, when you are trying not to exclude anyone from your sales and marketing efforts, it’s very difficult to connect with people.

Yes, a narrow niche strategy is hard at times, and when business goes a little quiet the temptation is always there to broaden my marketing into other markets. But doing that will dilute my presence in the narrower (financial adviser) market. And just because you target a niche only, it doesn’t stop you working in other markets. I’m currently working with a fantastic construction company, who saw what I was doing with financial advisers and asked me to bring those skills to their industry. It’s a big challenge for me working in an industry that I’m not immersed in, but that challenge is making the work very interesting and enjoyable. But staying focused on my niche in my sales and marketing efforts will generate the lion’s share of my work, and is the right strategy for me.


What are viable niche strategies for financial advisers?

Financial advisers who have gone down the niche route successfully have tended to do so by focusing on one (or sometimes more) of the following,

  • Demographics: Focusing on specific age categories, gender, social grades (e.g. ABC1’s)
  • Employment sectors: Focusing on the public service specifically, sectors within the private sector, specific occupations.
  • Geography: Focusing on clients within a certain geographic area only
  • Product lines: Focusing on developing expertise and leadership positions within specific product areas or dealing only with clients who require full financial planning relationships.


What are the main steps in building a niche strategy?

If you decide to go down the niche route, first of all you need to do some research about your target niche. You need to understand the numbers of target clients (is the niche large enough to sustain you?), think through how you will access them and consider what opportunities are available to you to market to them effectively. You need to also think deeply about the problems that you will be able to help them to overcome, and how you will communicate and demonstrate your capabilities to that segment of the population in an engaging way. Because at the end of the day, you will live or die by whether your target customers recognise that they are dealing with a specialist in the particular niche or not.


Niche strategies are certainly not right for every financial advice business. However for some, they just might be the best way to fully leverage a unique strength or opportunity of your business.