Our recent research on the adviser market has proved a fascinating exercise, and we have been privileged to speak to many business owners from a wide range of firms. Our glimpses into the inner workings of advice businesses prompted us to try to think about what models may emerge in the future as the adviser market continues to develop in a post RDR and post pension freedoms landscape.
We came up with two profiles that we see as compelling models: we have called them ‘empire builders’ and ‘nurturers’. Of course it is never easy to categorise advice firms, there are many vibrant and successful business that will not conform to these models but may have some traits in common.
The infographic outlines the hallmarks and risks for these firms.
Empire builders are looking for growth. These firms are increasing their adviser numbers, clients and assets under management. They aim to boost their revenues by driving growth and scale – often by acquisition. Empire builders need to focus on:
- Technology – to grow client numbers through automation and to establish different tiers of clients.
- Maintaining personal service levels.
- Whether to take on discretionary permissions.
- Expanding their marketing beyond personal referrals.
- Reducing complexity by standardising their processes and increasing the homogeneity of their clients.
The challenges for empire builders include:
- Keeping a good culture, effective control and high quality staff without greatly increasing their overheads as they grow.
- Avoiding shoe-horning their clients into unsuitable and more expensive solutions.
- Standardising their processes while still ensuring suitability.
Nurturers are looking to drive up profitability per client rather than overall growth in clients. These firms have a clear proposition, focusing on well-defined high-net-worth client segments. They are not necessarily seeking aggressive growth in their client or adviser numbers, but they do want to drive the profitability of each of their clients. Such firms are moving higher up the value chain and arguably aim to compete with private banks and bespoke discretionary managers.
Nurturers need to focus on:
- Offering charging structures that match the complexity of their clients’ needs.
- Having efficient processes and support structures to enable advisers to maximise time spent with clients. and minimise their admin time. It’s all about adding both actual and perceived value for clients.
- Intelligent business development – finding new clients with the right profiles.
- The clarity of their proposition.
- Employing high quality advisers, paraplanners and analysts internally; and most likely outsourced compliance and some other functions.
The nurturing approach is not without some risk:
- The homogenous client base carries some risk to these firms because they have client books that are concentrated in particular areas or activities.
- Specialisation can also be a problem in an evolving financial environment. The FCA is keen on businesses that build up a high level of expertise, but such firms may turn out to be vulnerable if they are not sufficiently adaptable to change.
In addition to this adviser company categorisation, we have also created some tongue in cheek adviser personas with Lucian Camp as part of our next report on the adviser market (Adviser Market: Adviser Propositions). Look out for them and the accompanying cartoons by the talented artist Martin Cunningham when we publish in August.