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Moving a business efficiently to unbundled charging

In the first of a series of articles, Andy Coleman, director of distribution Cofunds, assesses the first two of seven essential steps to moving an advisory business to unbundled charging

5 April 2016 signals the ‘Sunset’ deadline – the date after which platforms such as Cofunds will move to commission-free share classes, meaning that trail commission for platform-based business will effectively be ‘switched off’.

If a significant proportion of your income as an intermediary still comes from trail commission, it’s vital to take action now to protect your future revenues. To help, we’ve come up with a seven-step action plan for converting clients to unbundled charging and commission-free share classes.

We start here with Creating An Action Plan and Analysing Your Clients.

Step 1: Create an action plan

Before you do anything else, it’s essential to have a clear plan of what needs to be done between now and the April 2016 deadline in order to move clients to commission-free share classes and your explicit charging model. But this isn’t just an execution exercise. It’s also an opportunity to think hard about what future direction you want your business to take. Issues to consider in your action plan include:

• Your Goal. What do you ultimately want to achieve? Do you want to move all your clients over to explicit charging – or is this an opportunity to reassess your client bank and decide which types of client you want to focus on in the future? Think about where you’d like your business to be in five years’ time and how your actions in preparation for Sunset can help with that.

• Your People. Think about whom in your business will be responsible for executing the action plan and who will be required for specific activities. Will anyone require any new training and is everyone clear on the firm’s goal and what’s going to be required to get there? Also consider how many business days you realistically have available for managing Sunset-related activities. Take into account holidays and busy periods, such as the end of tax year and client review periods.

In addition, at this stage it’s important to consider what other collateral you’re going to need. Do you want to create a new brochure about your fee-based service – or a new section on your website? If so, consider who will own these tasks.

• Your Audience. Prior to your in-depth client analysis (see Step 2), think about which of your Sunset clients you’ll need to contact, how you’re going to contact them (letter, telephone, email) and how this can align with other client contact. Does it need to be separate from other campaigns and mailings? What timetable will you follow for engaging with clients – particularly those with whom you’ve had little contact?

• Your Resource. What extra costs on top of BAU spending do you broadly expect for your Sunset client-conversion process? Think about additional marketing costs, overtime, IT and the cost of further client meetings and calls. Draw up a budget of what resources you have available – and what you think you’ll realistically need.

At this stage, your action plan is likely to be in draft form. As you progress through the ‘Seven steps to Sunset’, you should be able to make it more detailed and accurate. Regularly review your action plan as more information becomes available and it’s clearer what’s required.

For examples of what an action plan might look like, log in to the secure Sunset section on the Cofunds website.

Step 2: Analyse Your Clients

Converting clients to unbundled charging may sometimes seem like an irksome task on top of all your other business demands but preparing for Sunset is also a valuable opportunity to reassess your client bank and to check that you’re focusing on the clients who are most likely to value your services.

To help you review your client bank, we’ve created a step-by-step Helping-you-analyse-your-client-data guide. This explains how you can conduct a full analysis of your entire client bank – not just clients with Cofunds – in six simple steps.

The guide shows how you can classify clients not just in terms of assets under advice (AUA) but also qualitatively in terms of life stage, the strength of relationship you have with them, and investment approach (e.g. passive or active).

This can allow you to do two things. First, by analysing clients in terms of AUA, you can immediately determine who are ‘above’ or ‘below’ your line in terms of commercial viability. Second, by assessing more descriptive criteria, it’s possible to identify which clients are closest to your ideal in terms of level of activity and engagement.

This can enable you to categorise clients into four groups:

• Group A: Clients who score highly both on financial and descriptive criteria

These are the clients who best fit your service and offer the greatest profitability, and who require your greatest focus and energy. These are the clients for your premium service.

• Group B: Clients who score highly on financial criteria but not descriptive criteria

These clients are profitable but may require more engagement from you. Alternatively, they may be happiest with a light-touch service, where contact is given only as required.

• Group C: Clients who score lowly on financial criteria but highly on descriptive criteria

It may be worth exploring a light-touch service for these clients. But also look at their age and status – could they become more financially viable in the future? Could they be encouraged to consolidate more assets with you? But check if they’re friends of the firm or have connections to other clients before making any decisions.

• Group D: Clients who score lowly both on financial criteria and descriptive criteria

These are your least-financially viable and least-engaged clients. They may want to consider a self-directed service that allows them to continue a connection with your firm without associated advice-related fees.

Before you embark on any further analysis or client communication, make sure you double check that any C or D clients are not directly connected to any A or B clients. Where relationships such as this exist it’s important, from a reputational perspective, that you proceed with caution and think carefully about the message you’ll take to these clients.

Also remember that clients may switch categories a number of times as their assets and circumstances change. Conduct this analysis regularly in the run-up to Sunset and thereafter to ensure your client bank ‘profile’ is up to date.

Finally, once you’ve conducted this analysis, check the number of clients you have in each category. Do you have the resources to service each group properly? Hopefully, by assessing your client bank in this way, you can ensure that your resources are efficiently allocated to service those clients who need and value them most.

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