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Moving efficiently to unbundled charging – Steps 3 & 4

In the second of a four-part series, Cofund’s director of distribution Andy Coleman assesses another two of the seven essential steps for moving advised business from trail commission to unbundled charging

It’s now less than a year to Sunset – the April 2016 deadline after which platforms such as Cofunds will move to commission free share classes and trail commission for platform-based business will effectively be switched off.

For firms who still have to transfer a substantial proportion of their business from bundled commission to unbundled adviser charging and an explicit platform charge, the 2016 deadline may seem daunting. But don’t panic: whether you want to manage the transition yourself, or would like Cofunds to take the lead, we’re here to help with our seven step Sunset plan.

In my previous article for ABR I explored steps 1 & 2, including the importance of drawing up an action plan in line with your long-term ambitions for your business. I also looked at the importance of analysing your client bank to assess which clients are most appropriate for your new fee-based service.

Now you know the steps you need to take and the clients you need to target, let’s look at the next two stages: ‘Assess Revenue At Risk’ and ‘Develop Your Services’.

Step 3: Assess Revenue At Risk

It’s important to determine by how much your ongoing revenue will be affected if you no longer receive trail commission on platform-based business – and which clients this involves. To ascertain revenue at risk, you can use Cofunds Sales MI tools to categorise your clients into three groups as shown in Figure 1.

Cofunds table - sunset steps 3&4 articleClient Group 1 requires no action in relation to Sunset, as all their assets on platform are in clean share classes, and they’ve agreed to your new adviser charges and the explicit Cofunds platform charge. Group 2 will currently have a mix of both bundled and unbundled assets, so action needs to be taken to transition to clean share classes and get fee and platform charge agreements in place.

But it’s Client Group 3 that will need the most attention: having no commission-free share class funds suggests that a client hasn’t had any activity on their account since the start of 2013. Provided you wish to retain these clients, this is where your communication focus needs to be between now and April 2016. Even if you don’t want to retain a client, please remember that you’ll need to communicate with them to terminate the relationship.

Step 4: Develop Your Services

If some of your clients are already paying adviser charges, you probably have already developed service propositions for them. But there are still plenty of firms that have yet to decide what ongoing services they will offer clients once they’re operating on fees rather than commission. Sunset is an opportunity to review your proposition and fine-tune it so you can target the type of clients you really wish to service – and the type of expertise you really want to deliver. Issues to consider include:

• What is your key proposition – general financial planning, or will you focus on wealth and portfolio management?

• Will you market additional areas of specialisation – for example, pensions and drawdown, school fees planning, intergenerational planning – and will these be included in or be extra to your main fee?

• Will fees be percentage-based, time-based or have a fixed element?

• To deliver portfolio management, will you use third-party services such as model portfolios or discretionary fund management?

• What will be the main form of interaction – and what will be the frequency of face-to-face meetings offered?

• How often will client reports be provided?

• Will the service include client access to online portfolio valuations?

Alongside developing a full fee-based advisory proposition, consider what you might offer to those existing clients for whom this service may not be appropriate. For example, how could you service clients with whom you have a good relationship but that don’t give you proportionate revenue to support a full-service proposition? Or how can you tailor your proposition to clients who only require simple or infrequent servicing?

Additional offerings you may wish to consider are:

• Light-touch services Designed to offer advice but with a lower level of client interaction to enable lower fees. For example, clients may receive service online and by phone, with face-to-face meetings provided on a lower frequency or for an additional cost. Light touch might mean offering model portfolios rather than highly customised investment solutions, and focusing on passive rather than active managed funds.

• Self-directed services A self-directed proposition gives your clients the power and control to view their portfolio and make their own transactions. But it still offers the reassurance of your support if they need it. It can therefore be a great option for those investors – particularly younger ones – whose portfolios are modest but likely to grow over time. As their financial-planning needs become more complex, these clients can then move over to your advised service.

The key issue when developing a proposition is to ensure that a service is able to deliver year on year in return for the ongoing fee you are charging. All the man-hours across the business required to deliver the agreed service to each client – including contingencies – need to be accounted for, with a profit margin built in. This is likely to be an iterative process – with the fee and service level each being gradually adjusted until the right balance is struck. By taking the time to get it right, firms can arrive at a client proposition that will help ensure sustainable ongoing revenue – and attach a clear value to the services and expertise they provide.

Visit Cofunds website

Read Andy Coleman’s article on steps 1 & 2


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