The increasing burden of red tape has left advice firms struggling to service clients with smaller amounts, so they need to draw the line somewhere. What I have learned during my 30+ years in financial planning is that the goalposts are constantly changing and you have to keep adapting, otherwise you will get left behind.
What with RDR, Mifid II, a hardening of the professional indemnity insurance market, greater examination requirements, increasing regulatory costs, challenging stockmarket conditions, Brexit and Trump over the past few years, the average financial planner has endured some extremely challenging conditions.
What has become apparent is that the ever-increasing burden of red tape is strangling IFAs and making it inevitable that we can only afford to serve high-net-worth and ultra-high-net-worth clients. It has become literally loss-making to service small clients. Many IFAs are having to sack clients they previously advised because they cannot afford to look after them anymore.
We have made the decision to only accept new clients who are willing to pay us a minimum fee of £2,500 a year. This means, in effect, that they must have at least £250,000 to invest because our fund-based adviser fee is 1 per cent a year.
We will accept investments and/or pensions of less than £250,000 as long as clients agree to pay us at least £2,500 a year. The fee may be payable directly to us or by deduction from their investments/pensions.
We have started offering our existing smaller clients three options:
- Pay our minimum fee of £2,500 a year;
- Revert to our robo-advice proposition;
- Find another adviser.
However, this is just the start. Within the next 12 months we intend to increase our minimum fee to £5,000 a year and eventually, within three years, to £10,000 a year.
I have come across a number of firms who are already practising this type of fee system and have shed many of their smaller clients. This has resulted in them becoming far more profitable as a result.
I have always found it far more profitable to deal with wealthy individuals, primarily by managing their wealth and tax planning.
We don’t plan to get rid of our historic smaller clients.
Clients who have moderate wealth will be offered a more streamlined service for a lower fee.
So if you want to overcome all of the recent challenges facing our sector, why not transform your business like ours and reap the benefits?
Tony Byrne is managing director at Wealth and Tax Management