Benchmarking: What makes Accredited Financial Planning Firms TM so special?

Transcription

1 Benchmarking: What makes Accredited Financial Planning Firms TM so special? IFP Accredited Financial Planning Firms Survey th March 2014 Susan Jordan and Phil Billingham CFP

2 Contents Foreword by the Institute of Financial Planning 3 Executive Summary 4 The Background 7 What do Accredited firms look like? 7 What does this result in? 8 What are the potential areas for improvement? 8 What can aspiring firms learn from this? 9 What are the next steps? 9 Summary of findings 10 Results 11 2

3 Foreword by the Institute of Financial Planning The Institute of Financial Planning (IFP) was formed in 1986 to develop the profession of Financial Planning for the benefit of UK consumers, and this continues to be our focus to this date. The IFP recognises individual excellence in Financial Planning through the globally recognised CERTIFIED FINANCIAL PLANNER CM certification, our Accredited Paraplanner (APP) designation and the IFP Fellowship (FIFP). Accredited Financial Planning Firms TM represent excellence in Financial Planning. They have been assessed by the IFP (a professional body and an FCA accredited body) and demonstrate the ultimate in professionalism through the calibre of their staff and the service they provide to clients. Accredited Financial Planning Firms must meet IFP's strict criteria covering areas including adherence with a code of ethics and practice standards, following the six step Financial Planning process with cashflow planning as a default service, attaining qualification standards well ahead of the FCA required levels, providing clarity of proposition and fees, and evidencing an ongoing commitment to effective CPD for staff. It s clear looking at the consistent results of our first benchmarking study, and particularly in the outcomes for customers, that in many key areas this is a group where great minds really do think alike. We hope that through publicising these results we can help the profession develop best practice and accelerate the growth in Financial Planning firms delivering great outcomes for consumers. Steve Gazzard CFP CM CEO IFP 3

4 Executive Summary There are a number of Kitemarks for Advisers, many of which have great value. However, The IFP Accredited Financial Planning Firm TM standard is different. That is because it looks not at the size of the firm, or even just at the qualifications held, but at the business model that the firm operates, and requires evidence that the model is actually implemented. To summarise, successful entry onto the register requires that firms must demonstrate that providing a Financial Planning service is core to their business. To do this, firms must demonstrate: The clear provision of a full Financial Planning service for clients, including cashflow modelling. That their Financial Planning proposition is clearly communicated and promoted to clients within their marketing materials. Policies and procedures which are consistent with the IFP's Code of Ethics and Practice Standards. A business structure which reflects a clear fiduciary responsibility to clients. A consistent fee structure which is company-wide. A clear and visible investment philosophy. That all staff are aware of the firm's Financial Planning service and how it differs from financial advice As long as firms can demonstrate that they meet these stringent criteria, as well as others around staff qualifications for example, they may be 4

5 admitted to the register. This means that there may be significant differences in the size of firms which achieve Accredited status By March 2014, 65 firms had achieved this standard. In January 2014 it was decided that the IFP would partner with the Phil Billingham Partnership in order to carry out research to establish: 1. How the firms that had achieved Accredited status were implementing the model 2. If this model really does result in better outcomes for consumers 3. If this model is commercially successful 4. What Accredited firms have done within their businesses that aspiring Accredited firms can learn from 5. What the next steps are for Accredited firms, and how the IFP can best support those steps The survey was a success. 72% of the Accredited firms responded to the survey, and early analysis of the results established the following high level findings: 1. Firms are implementing the model They are Independent and act for their clients Clients do receive cashflow planning The firms use Paraplanners They have clear Investment strategies 2. The firms receive exceptionally low levels of complaints. This is a very good proxy for good consumer outcomes from these firms. 5

6 3. The firms are commercially successful They showed high Planner productivity and efficiency They tend to have higher profit margins and annual growth than many other firms in the wider IFA marketplace (Source Plimsoll report January 2013) 4. The Accredited firms have spent time and resource focussing on their vision and internal processes They have clear target clients They have up to date business plans They have a clear business model They use world class support and software in their firms 5. The next steps are about marketing the emerging brands These brands are both the individual firms and the Accredited firms brand This is where the IFP could usefully add most value in the months ahead The results from this survey, which was carried out online in February and March 2014, are still being researched, and deeper analysis will result in deeper conclusions. In addition to these summary findings, the 47 participating firms themselves have received individual reports, and these contained individual feedback. We encourage these firms to review this feedback, and build it into their 2014 action plans 6

7 The Background We are one year into RDR, and for most Planning firms, RDR was a non-event As we continue the transition, other factors take over: Profitability Marketing Sustainability Succession We wanted to see: I. What Accredited Planning firms look like II. What firms need to do to become Accredited III. What the next steps may be What do Accredited firms look like? Independent 2 support staff per Planner clients per planner 830,000 turnover last year per firm 100 Million in assets under influence per firm Translates as 90bhp yield on AUI Mainly FinaMetrica users Significant use of passive investments Clear investment and due diligence processes Good internal vision and clear target clients Clear business plans Outsourced Compliance support 7

8 What does this result in? High yield per Planner upfront and ongoing Low cost of advice compared to many Higher profits than Adviser firms but could be better Lower risks within the firm hardly any complaints Efficient use of Planners time compared to many others What are the potential areas for improvement? Succession and exit planning All retiring at same time Developing leaders and scale within the firm Internal cohesion Ensuring consistency of vision still needs work Marketing plans taking the vision outside the firm and taking on more clients Segmentation is still largely AUI based Is there room for other service propositions? What about children of clients? 8

9 What can aspiring firms learn from this? A clear investment proposition is essential Independence Clear target market Low complaints Robust risk analysis process Use the best tools Finametrica Voyant and Truth External compliance support A high touch / hi tech service proposition works! What are the next steps? A clear marketing process and plan Brand Media Vision externally Look at business continuity Traditional disaster planning Exit and succession strategies A low touch / hi tech service proposition Lower value / next generation clients 9

10 Summary of Findings Accredited firms are successful in business, not just in gaining accreditations This is translating into higher profits, higher growth and lower risks to consumers The building blocks are clear and repeatable for firms who want the same success The next steps for Accredited firms are to build scale and take the vision and process to a wider client base 10

11 Results Have you chosen an independent or a restricted model? Independent - it works for our model 74.0% Independent - it's what our clients want 20.4% Restricted - it's cheaper/lower risk to run this model 0.0% We think we are still Independent, but not sure 5.6% How many support staff (including Paraplanners) do you have per Planner? 1 or less 25.9% Between 1 and % Between 2 and % More than % 11

12 What proportion of Planner(s) time is spent on income-earning or client work? Never measured it 7.4% Less than 20% 3.7% 20-40% 14.8% Over 40% 74.1% What proportion of new clients receive a Financial Planning Service with cashflow analysis rather than a Financial Advice service? Under 20% 0.0% Between 20% and % Between 40% and 75% 11.3% Above 75% 88.7% 12

13 How many active clients does each planner look after? It varies a lot between Planners 5.6% Up to % Between 60 and % Between 100 and % More than 150 per Planner 0.0% What is your gross annual turnover for the last complete accounting year per registered individual? 0-74, % 75,000 to 124, % 125,000 to 174, % Above 175, % 13

14 What was your growth in terms of turnover in the last accounting year, compared to the year before? Less than 5% 14.9% 5-10% 21.2% 11-15% 12.8% Over 15% 51.1% What are your operating costs as a % of your turnover? (Exclude the cost of regulated individuals) Less than 25% 8.9% 25-40% 35.6% 41-60% 42.2% Over 60% 13.3% 14

15 What is the cost of planning / advice as a % of turnover? Never calculated 29.8% Less than 40% 44.7% 40-60% 23.4% Over 60% 2.1% After allowing for directors or partners remuneration, what is your profit margin? Less than 10% 17.8% 10-15% 33.3% 16-20% 13.3% Over 20% 35.6% 15

16 When was the last time your written business plan was updated? Within last 6 months 45.8% Between 6 and 12 months 20.8% More than 12 months ago 14.6% We don't have a current documented Business Plan 18.8% Do you have a written profile of your ideal client that you use with introducers and potential sources of new business? Yes - and it's on the website 31.3% Yes - but it's not always used 37.5% We discuss it, but have not written it down 27.1% We are more generalist than that 4.1% 16

17 Do you have a written vision / mission statement? Yes it is fully embedded and we refer to it when we make any changes to the business Yes we have one, it's in our business plan and we publish to clients e.g. on website 51.0% 8.2% We have one but don't use it 10.2% No we don't have one 30.6% Could your staff articulate your vision and ideal client? We would hope so 45.8% Probably - but have not tested 33.3% Not really concerned 2.1% Yes - we've looked at this 18.8% 17

18 Does the firm have a written vision of where you want your business to be in 5 or 10 year s time? Not really 10.4% We are focussed on making progress and being profitable 31.3% This is something we need to address 16.7% This is a critical part of our business plan 41.6% Do you have a structured marketing plan? No need 16.3% Looking to do this 24.5% Yes, we do have a plan but not written down 28.6% Yes, we have a marketing plan written down and reviewed 30.6% 18

19 Do you use social media to contact potential clients and maintain a profile? Yes - this is important to us 16.7% We are reviewing our policy here 37.5% Yes - we have an integrated plan and we implement it 4.2% We do sometimes but not regularly 41.6% Is your website a true reflection of your brand and service? Does it tell a story? Yes % No but we are reviewing it at the moment 18.4% Not sure 6.1% No we really don't have a brand 0.0% 19

20 Would your clients know what you / your brand stands for and be able to describe it? Yes and we have tested their understanding through our client surveys 46.9% Not sure, never asked 53.1% Do you have a programme of interaction with the media local or national? This is not important to us 38.8% We have considered it - but no action as yet 16.3% We have had some activity - but nothing planned 28.6% We have a programme and a plan 16.3% 20

21 Do you have a written, agreed internal investment philosophy as a practice? Yes and it is used and reviewed regularly 93.9% Yes - it's on file 6.1% No need - the planners know their clients needs 0.0% Never thought about it 0.0% How do you conduct due diligence on investment products? We tend to use what we already know 6.1% We buy research 10.2% We have an investment committee that meets and reviews regularly 83.7% We rely on product providers seminars and materials 0.0% 21

22 What is your primary investment approach? We primarily use a passive approach 68.8% We use a core and satellite approach 20.8% We primarily use an active approach 8.3% We outsource to DFM(s) 2.1% How often do you review client holdings against their original agreed risk profile? We review and comment on this when we send valuation statements No need to, as clients can see this when accessing their Wrap / Platform account No need to, as we recommended the investment which was the most suitable for their risk profile at the time If the markets have moved significantly, or if clients raise it 89.8% 4.1% 2.0% 4.1% 22

23 Do you have an asset allocation methodology? Yes - we consistently use external asset allocation 80.4% Yes - each Planner works to an asset allocation the feel is appropriate There is no one programme or model used by Planners We tend to use a few product provider or wrap solutions 17.4% 2.2% 0.0% How have you segmented your client base? We segmented according to client assets / income 36.7% We segmented to client demographics e.g. age / service required 10.2% Both of the above 32.7% Not Segmented 20.4% 23

24 How does your firm predominantly charge clients? Charges are calculated and agreed on a percentage basis 89.6% Charges are calculated and agreed on a retainer basis 6.3% Charges are calculated and agreed on an ad hoc basis, depending on the client and the work needed There are inconsistencies within the firm on charging, it can depend on what the Planner negotiates with the client 4.1% 0.0% Do you have a written client take-on and client review processes? No 6.1% Yes - the Planners use them 79.6% Yes - bit not written down 4.1% Yes - but mainly for 'back office' staff 10.2% 24

25 How do you ensure that you convey information and recommendations to clients in an understandable manner? We have never had a problem 2.0% We always respond to any questions or concerns 10.2% This area forms part of our TCF work and has been reviewed 24.5% All or material is designed to be clear as possible 63.3% How often do you proactively contact your top clients? Over 12 times a year 22.4% 6 to 12 times a year 49.0% Six monthly 18.4% As and when needed 10.2% 25

26 How do you know you fully comply with all regulation including FCA? We have a strong competent internal resource 12.2% Our internal resource is backed up by a respected outside expert 57.2% We are externally audited from time to time 20.4% We use distance support 10.2% Do you have business insurance such as key man insurance in place? Yes 51% No 49% 26

27 Do you have a written Risk policy and plan? Yes, it's our risk / compliance plan 53.1% Yes - it's wider than our risk / compliance Plan 34.7% No I am a one planner firm with no support staff 4.1% No need - we know where the risks are 8.1% Do you have a business continuity process? Yes and it's been tested 18.4% Yes but it's never been tested 65.3% In the process of implementing 4.1% Not yet fully in place 12.2% 27

28 What is your average level of complaints per registered individual per annum? % % % % Do you have an exit strategy in place for your practice? No not really thought about it yet 14.3% Have thought about it and it's on our agenda but haven't done anything about it We are in the process of implementing systems and procedures that will help with succession planning Yes we have timescales and systems and procedures that have been implemented 30.6% 34.7% 20.4% 28

29 Are clients the clients of the firm or of the planner? The firm primarily 61.2% The Planner primarily 18.4% In reality this is balanced equally 16.3% It will really depend on the client 4.1% What happens if the business principal(s) takes a 3 week holiday and are out of contact with the business? Don't know - it's never happened 8.2% No issues - we do this all the time 61.2% We can't imagine taking 3 weeks out without contact 10.2% We think it would be okay - but contact would be needed 20.4% 29

30 What are the directors expectations of a retirement / exit timescale? We have never discussed this 18.4% About the same time 28.6% There is a spread of at least 5 years 24.4% There is a spread of at least 10 years 28.6% Below Board level, have you identified or recruited leaders? Not relevant - we are too small 55.1% No - but wish we had 2.0% Not yet - this is something we are doing right now 14.3% Yes, this has been a consistency policy for us 28.6% 30

31 Which back office system do you use? Avelo 30.3% Intelliflo 4.3% Plum 2.1% Capita / Quay 4.3% Other 51.1% Which Risk Profile package do you use? FinaMetrica 74.5% Dimensional 2.1% Dynamic Planner 4.3% Other 19.1% 31

32 Which cash flow tool do you use? Truth 34.0% Voyant 34.0% Plan Lab 2.2% Other 29.8% We don't do cash flow 0.0% Do you have unregulated entity to deliver services? Yes 11.1% No 88.9% 32

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