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Advisers tell us what’s impacting their business this year

Threats, challenges and opportunities – what are adviser businesses facing in 2016? Fiona Bond talked to a range of advisers about how their businesses are being impacted this year

A rocky landscape of volatile markets, rising FCA and FSCS costs and changing legislation can make sustaining a business challenging.

Business growth and longevity depend upon firms’ ability to remain profitable, but many advisers argue that the burden of increasing costs is proving a hindrance.

Managing director of Derbyshire Booth, Greg Heath, calls the “unknown and quantifiable costs of regulation” the biggest threat to firms.

He says: “The costs currently stand at over 16-20% of our turnover, although it can easily be argued it costs more. We literally never know what it is going to be so therefore, by default, it is the biggest risk to our business, especially our profitability. As a small business it can easily destroy us in one swipe if we are not very careful.”

Lamb,-CarlIt is a frustration shared by Almary Green managing director Carl Lamb (right), who says the “open cheque book held over firms” by the regulator, and the constant paying for other’s mistakes leads him to believe “that we are headed for a train crash if common sense does not prevail sooner rather than later.”

In order to ensure the Norfolk-based firm keeps pace with the financial demands, while remaining profitable, Lamb has “cut back on all unnecessary ancillary costs, such as marketing budgets,” but warns that after those costs, the greatest financial commitment for businesses is people.

Building headcount

Indeed, rising FCA and FSCS costs means that growing firms are having to redirect their cash flow away from hiring new staff.

Day Andrew - Depledge Strategic Wealth MgtAndrew Day, principle director, Depledge Strategic Wealth Management (left), says that the unpredictable costs are particularly challenging for young businesses and those looking to enter the market.

The firm, which was founded two years ago, holds a high cash balance in reserve, but inevitably grows at a slightly slower rate as a result.

Day says: “There’s a real call in the industry for younger advisers to come on board, and we’ve just recently take on a new, younger consultant, but the costs firms have to contend with mean it’s not easy to invest in new employees and training.”

Neil Bailey, director, Fortitude Financial Planning, believes firms must adopt an approach of “development rather than fire-fighting,” if they are to successfully overcome challenges in the market and attract the right staff and clients.

“A firm should structure the business plan to ensure that there are sufficient resources – management time, support team, budget – available to deal with it. If one adopts this approach, the ‘challenge’ of finding the right clients will evolve into a process for doing so and the right people will want to be part of your business,” he says.

LIndfield Paul - Sedulo Wlth MgtSedulo Wealth Management director Paul Lindfield (right) agrees that finding the right people, with the right attitude, is absolutely crucial. The firm, which has grown from two members of staff to five in just 18 months, relies on recommendations or apprentices it can mold, but says doing so means it is under pressure to write new business.

“The challenge we face is writing good, profitable new business. We do a lot of work within protection, which brings a good cash injection, but if you want to grow the firm at a sustainable rate you really need to build up your recurring income stream,” Linfield says.

But just how easy is it to write new business and attract the right type of client in today’s climate?

Finding the right client

The need for advice has arguably never been greater, with changes to legislation, included the much-lauded pension freedoms, opening up interesting opportunities to advisers and clients alike.

However, Heath (below) warns that a “lack of clear guidelines” from the regulator in some areas is causing advisers to be more cautious than they would normally be, in a case of “once bitten, twice shy.”

greg heathScreen Shot 2015-06-18 at 11.19.12“I have personally spoken to a number of advisers who agreed a particular course of action for a client makes sense, but have either been blocked by their compliance department due to fear of regulation breaches or PI insurers with large excesses,” he explains.

“Hence, until we have absolute clarity from the FCA and Treasury, advisers will naturally protect their businesses against the risks of future regulatory changes, claims of poor advice and worse, claim chasers,” Heath adds.

Heath is hopeful that the FAMR will offer some clarity and respite from the “constant meddling and often unnecessary changes that are brought in.”

Linfield agrees that the pension freedoms have brought with it both huge opportunities and challenges.

He says: “The ability for individuals to do things they could never do before means we are receiving far more enquiries, but that in turns means we are dealing with much more complex cases so it can be a double-edged sword.”

Linfield says the challenge for the Manchester-based firm is the level of due diligence it must now go through in order to ensure platforms and propositions are right for clients, especially with providers introducing new products to the market.

As well as ensuring its proposition is spot on, firms must also make their knowledge and experience known to potential clients.

Day says that while there is growing publicity around the need for advice, the firm must still ensure it markets itself to bring on the right type of client.

“If we didn’t chase clients or market our business in the right way, the phone wouldn’t ring,” he admits. “Some people make enquiries but put off receiving advice and it’s our job to see that it would really benefit them.

“There is so much going on in the markets at the moment, it serves as a reminder that investing isn’t as easy as many people are led to believe,” he adds.

RohanIt is a sentiment echoed by Rohan Sivajoti, founder of Postcard Planning (right), who says success is based upon a firm’s ability to convey the benefits of what they do in a simplistic fashion.

“People buy people, as the saying goes, so don’t be shy to put your face at the front of your marketing efforts – that way you attract the people you want to attract,” he says.

Volatile markets

Volatile markets are naturally creating an element of concern among investors, but Day says conversations with spooked clients often ends with them understanding that despite short-term dips, they continue to have a long and secure financial plan.

“We’re very diversified within our portfolios and we never follow short-term fads, so that we don’t expose our investors,” Day says. “A lot of the work the regulator has carried out around assessing capacity and impact of loss has worked in the long run.”

Linfield agrees, and says changes in the market often prompt a constructive conversation with clients, and the opportunity to look at what else might be suitable.

“We look at client’s capacity for loss, as well as the timeline they’re working to, and go from there. A dip in the markets can often represent an opportunity for investors and I believe most people’s common sense dictates where they want to be headed in the long term,” he says.

In spite of so many changes to the market, and what Linfield describes as a desire among people to “focus on the negative”, he believes now is a better time than ever for financial advisers, with opportunities for the industry at their best yet.

Fiona Bond is a freelance business writer

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