PruConsulting. Your Business: Developing a Client Proposition. Change, Focus, Support, Growth, Delivery

Transcription

1 For Adviser use only not approved for use with clients Adviser Guide PruConsulting Your Business: Developing a Client Proposition Change, Focus, Support, Growth, Delivery

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3 Our industry is currently in the middle of a period of tremendous change and during these turbulent times we are witnessing an increasing demand for support from our distribution partners. At Prudential, we are determined to meet this demand with market-leading and highly professional support which includes our team of Certified Management Consultants, PruConsulting. Alongside this support, we have developed a series of simple but highly effective Adviser Guides, each of which are designed as a step by step "journey planner" for you to follow as you review and adapt your business model to the rapidly changing environment. The feedback to date on these guides has been extremely positive and we will of course continue to invest in our adviser support material and services based on what you tell us you need. The full range of these Adviser Guides and other support materials are available from We hope you find these materials useful. As always, please fire in any suggestions you have for what you would like to see covered in the future. John Warburton Managing Director, Retail Life & Pensions, Prudential UK & Europe Adviser Guides available include the following: Effective recruitment Practice sale or succession Developing a business plan How to develop your ongoing service propositions Creating an effective marketing plan Client-facing brochure PruConsulting developing your business The marketing toolbox Developing professional connections Developing a client proposition Managing a client bank Creating a profitable charging structure For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 3

4 Contents Context page 4 Three core aspects of a typical client proposition page 5 The Process page 6 Business Vision and Objectives page 7 Current Working Practices and Client Offer(s) page 8 Segmenting Bank and Conducting Research page 10 Proposition(s) page 11 Pricing Services page 17 Assessing Resources page 21 Implementing the Action Plan page 22 page 24 Summary page 25 This guide is designed to help provide you with an introduction and insight into the process of developing and embedding a client proposition into your Practice. It covers: > The potential benefits > The investment required > A summary step-by-step approach to developing a client proposition > Tips on how to make each stage run smoothly > The importance of the ongoing development of your client propositions 4 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

5 > Context Many Practices have grown organically over the years and as a result have a number of propositions on offer often dependent on the individual salesperson or historic marketing. While in the early stages of growth this can be managed relatively easily, for more mature businesses this can lead to inconsistencies in terms of delivery, lost opportunities for future business and money being wasted on activities that clients don t value. These factors, coupled with issues such as Treating Customers Fairly, the Retail Distribution Review, the size and maturity of Adviser client banks and the squeeze on profit margins have led many Practices to revisit their business model and ask themselves a range of questions, distilled into four key areas: Key Areas Do we clearly understand the type of client we are trying to attract or retain? Do we offer a client proposition that is appropriate to their needs? Do clients understand the proposition and what they can expect from us? > What we do, how we do it and why we do it. Do we have the processes and resources to deliver our proposition(s) on a consistent and profitable basis? It should be noted this is not about treating all clients the same or straight jacketing individual Advisers. It is about having a structured approach to client acquisition and management that fits with the business objectives and is profitable for all concerned; your client, your Practice and Advisers. The number of client requirements and their complexity should depend on the businesses objectives, its core markets and the ability and desire to resource and manage the different elements. When it comes to making the most of your client proposition it is vital that you do not underestimate and therefore undersell all that is on offer to your clients. In many cases it is clear that Adviser firms fail to articulate the real value of what they can deliver. The diagram opposite illustrates the three core aspects of a typical client proposition i.e. Advice Proposition, Investment Proposition and Service Proposition and this can serve as a useful prompt when Adviser firms are thinking about how to communicate their proposition to clients in a truly effective way. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 5

6 > Three core aspects of a typical client proposition Advice Proposition (Cost of Advice) Engagement Conversation Discovery/Factfind Stage Research & Analysis Stage Implementation Financial Plan/ Presentation Investment Proposition Research Tools O&M, Selectapension, Aequos, Synaptics Brand Performance De-risk Know your customer/ gather information Wraps Platforms Active Passive Offshore/Onshore Asset Allocation Tax DFMs MultiM Fund of Funds Structured Solution Attitude to Risk Model Portfolios Internal Funds WProfit Trusts Tax Wrappers Value/TER Corp Governance Service Stochastic modelling Time Service Propositions (Cost of Service) Proactive and Reactive service propositions that can be reviewed and adapted as appropriate depending on the client s needs that should include all of the stages above Developing and embedding a new proposition isn t something that can be done overnight; it should include key staff and clients and requires careful management to embed the new processes in to the core of the business. However, making this transition to a clearly defined and articulated proposition can bring a number of benefits: > Increasing the effectiveness of marketing practice > Attracting and retaining more high value clients > Cutting out non-value add activities or non-profitable > Focusing on more profitable clients > Allowing cost reduction, appropriate remuneration models and increasing margins > Creating a brand identity with greater potential numbers of referrals > Satisfying Treating Customers Fairly (TCF) requirements while providing clear guidelines for Adviser management 6 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

7 > The Process Having a clear process to follow is vital when managing change in your business. It gives you a reference point when you are immersed in the individual details and brings you back on track when things go awry. The following diagram outlines the process for developing a proposition: Business Vision and Objectives Current Working Practices and Client Offer(s) Segmenting Bank and Conducting Research Proposition(s) Action Planning Assessing Resources Pricing Services Implementing the Action Plan Aligning Process with Annual Business Plan Let s have a look at each stage in more detail > For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 7

8 > Business Vision and Objectives If the vision for your business isn t clear then consider asking yourself questions such as: Define your Business business vision Vision objectives and Objectives Action Planning Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) > What am I/we trying to create? > Am I driving for income, capital or both? > How large do I want the Practice to become? Implementing the Action Plan Aligning Process with Annual Business Plan > What role do I/others want to have? > What are my timescales? > What is my/our exit strategy? Also, it is worth considering at this stage which of the various propositions may fit with your vision. The final client proposition must be intrinsically linked to what you are trying to achieve both personally and within the Practice. For example, your proposition will be substantially different if you are trying to create a large multi-market National IFA or a boutique Wealth Manager focused on High Net Worth clients. Developing a clear business vision and set of objectives is best accomplished through removing the management team from the day-to-day running of the business, using external facilitation to question your thought processes and provide observations. There are a large variety of client propositions and descriptions throughout the distribution sector but these can broadly be summarised as follows: > Wealth Management: May include discretionary fund management and platform strategies. > Full Financial Planning: Holistic advice with a disciplined review process and supporting technology. > Transactional Relationship: Characteris ed by irregular contact when business is to be transacted or advice required with no ongoing service requirement or commitment. > Specialist Advice: Advice focussed predominately in one financial sector i.e. Investments, Pensions, and Mortgages etc. > Direct: A product-led rather than advice-led approach using direct contact strategies such as the internet > Hybrid: A combination of two or more of the above. This is not an exhaustive list but accounts for the majority of the market and is supported by a range of remuneration strategies. 8 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

9 > Current Working Practices and Client Offer(s) Business Vision and Objectives Action Planning Implementing the Action Plan Revieing Current Working Practices and Client Offers(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) Aligning Process with Annual Business Plan In the words of the old joke I wouldn t start here but the reality is that unless this is a new business you are likely to have at least two propositions (possibly more) even if these are delivered on an ad hoc basis. It is important that you clearly establish the starting point for the project by understanding what you currently offer to the market and how consistently it is delivered. This is a true reflection of the practice brand. It is a good idea to talk to each of the Advisers and ask them what they think their proposition is and how it is delivered. You need to ask yourself whether you have variations across the business and if so, are you comfortable from a business and a compliance perspective? It is also useful to understand what is actually being said to clients at the point of sale, ask your Adviser to go through their sales and servicing processes with you, what works for them or seems of particular interest to the client. Speak to your administrators or Practice manager, they will have a good idea of what commitments are being made and followed through and where issues tend to arise. In addition to speaking to people within your business don t forget that clients can be a very important source of valuable information so don t be afraid to ask them what they think > What do they believe is your proposition? > Has this been fully explained to them in a way that is effective or are they drawing their own conclusions about what is on offer? > What is it about what you do that your clients really value and are prepared to pay you for? On the subject of clients being prepared to pay Advisers for an ongoing advisory service, research carried out by J.P. Morgan illustrated some interesting points as shown in the diagram opposite. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 9

10 J.P. Morgan carried out some client research and published the findings in a report entitled Adviser Charging: putting a price on financial advice. As you can see below a total of 49% of respondents considered an acceptable annual fee to manage their investments and provide advice to be between 1% and 2%. Furthermore, and perhaps the most telling figure shown is that 37% of respondents don t know what an acceptable annual fee actually is. This highlights a clear challenge for Advisers and demonstrates the need for Advisers to educate and inform their clients about the value that is on offer. Acceptable annual fee for an ongoing advisory service Q: If an investment adviser s fee was based on the value of your investments, what would you consider an acceptable annual fee (including VAT) to manage your investments and provide advice year on year? % of respondents 0% 10% 20% 30% 40% 1% 27% Acceptable fee as percentage of portfolio 1.50% 2% 3% 4% 5% 6% 7% 8% 9% 4% 1% 3% 1% 2% 1% 9% 13% 10% 2% Don t know 37% Source: J.P. Morgan Asset Management/ICM. 05/2011. Base: Non-rejecters of paid-for financial advice (234) 10 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

11 > Segmenting Bank and Conducting Research Define your Business Vision and Objectives Action Planning Implementing the Action Plan Current Working Practices and Client Offer(s) Assessing Resources Segmenting Segment your client Bank and bank & conduct Conducting research Research Pricing Services Proposition(s) Aligning Process with Annual Business Plan Developing a proposition is intrinsically linked to some form of client segmentation process. Often developing a proposition accompanies a rationalisation of the client bank and research with key clients to find out where you really add value. This will allow you to match your proposition(s) more exactly to client needs as well as reducing costs through doing away with unwanted activities. Having segmented your existing client bank, it is possible to gauge the views of cross-sections of individuals in each category in a structured manner to inform the design of your service offer. This can be done through a client survey/ questionnaire, telephone feedback or on a face-to-face basis and will assist the Practice with providing evidence of Treating Customers Fairly. It is important to involve your compliance team before embarking on any feedback campaign. There are a number of criteria by which you can segment a client bank, including: existing income into the practice, wealth, future business potential, existing servicing commitments etc. This process should be linked to your vision for the business. For more information on this topic see the Adviser Guide Managing a Client Bank. Not all clients will want or wish to pay for your new proposition recognising this now will save a lot of problems at a later stage. This is also an ideal opportunity to divest the Practice of clients who are non profitable or are, in reality, just names on a list. Alternative proposition options > The impact of Adviser Charging has led firms to develop alternative ways of servicing clients' needs. > As part of developing your thinking in this area you may also want to give due consideration to the potential for offering restricted advice in line with the changes outlined in the Retail Distribution Review. > For your transactional clients you may want to perhaps offer a more direct/self service arrangement for some of the simpler areas of client need. > For example: For dealing with ISAs each year perhaps you could point the clients towards a recommended website which you may (or may not) have developed as a business. Alternatively you could do this as part of your annual review meeting. > By doing this you can maintain the relationship with the client and also preserve your revenue stream without undertaking the full advice process thereby freeing up more of your time to concentrate on more pro-active clients. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 11

12 > Proposition(s) Business Vision and Objectives Action Planning Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) For most Practices the first decision surrounds the provision of proactive ongoing service/advice. If you commit to providing an ongoing service there are three main things to consider: > What are the costs for providing this service? > Will my clients pay for the service? Implementing the Action Plan Aligning Process with Annual Business Plan > Do I have the infrastructure to ensure it happens? Through your segmentation work you should have an idea of the breakdown of clients by category that currently exist in your client bank. You can now revisit the work you did when establishing the business vision and consider the detail of your service proposition. In reality most firms will probably conclude that they need more than one offer. Experience suggests that clients broadly break down into those that require a transactional one-off or series of one-off relationships and those that want and need more regular service and contact. For Practices looking to refine their offer this can be a very clear and simple first step to build into their sales process. By this stage you should have a clear understanding of: > What your existing client bank looks like > The proposition and service levels you have been providing > What your clients value As we have already seen it is important to carefully consider what you actually mean by Client Proposition and to maximise the opportunity this represents to promote your business and attract clients to you. By separating out your cost of advice, investment proposition and cost of service you can develop a compelling story around what you have to offer. 12 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

13 When it comes to dealing with new clients a number of Adviser firms struggle to effectively articulate what they do, the benefits to the client, and how they work which can be confusing for many clients. To remove some of this confusion and to provide a robust and consistent framework for engaging with clients many forward thinking firms have developed a form of client brochure which can be used by every Adviser in the firm and supports the development of a consistent client experience across the firm. A generic example of this is given in the diagram below. The actual document itself is available from your usual Prudential contact and also on the PruAdviser Website. ABOUT US PC Financial Services provide a high quality professional financial planning service. We offer a clearly defined service, transparent fee structure and an effective service proposition. Our core values ensure we act with the utmost degree of integrity and professionalism at all times and are open and ethical in everything we do. We operate a transparent charging structure and put our clients best interests at the heart of the business. We believe that professional financial advice can add significant value to individuals and to businesses. It is because of this belief that we are able to offer a comprehensive ongoing review service designed to create real value for our clients. PC Financial Services four key principles centre around honesty, integrity, reliability and value. We: will be open, honest and transparent with you at all times and believe that honesty is the best policy will act with integrity in everything that we do (our reputation depends on it) believe in delivering on our promises to you and ensuring that we do what we say we will do believe that you have every right to expect value for money from us and that s exactly what we constantly strive to deliver. We are committed to working with you to help you prosper. OUR TEAM Our team is at the heart of our business. Our Advisers and Servicing Team deliver consistently high standards and are committed to delivering an excellent customer experience for all our clients. Director A Director B THE WAY WE WORK PC Financial Services follow a carefully designed financial planning process so that you know exactly what is happening at each stage of its six steps: Step 1 Engagement Identify your needs and objectives We will arrange an introductory meeting to fully explain how our service works, identify your primary financial needs and objectives and answer any questions. Step 4 Plan presentation Develop an action plan Once we ve constructed your Personal Financial Plan (PFP), we ll take you through it stage by stage. It will set out specific and realistic recommendations designed to achieve your stated objectives over an agreed time period. Step 5 Implementation Plan implementation Now it s time to put the plan into action. You can relax in the knowledge that we will be taking care of all the necessary final steps to turn your plan into reality. Step 2 Discovery Gather information If you feel you can benefit from our service, your Adviser will work with you to fully understand your objectives and develop these into well defined goals. Your Adviser will gather financial information to provide a comprehensive picture of your circumstances. Step 3 Research & analysis Prepare an analysis of your situation Once your objectives are agreed, we will work with you to complete a Personal Financial Plan (PFP). This written report provides an analysis of your current financial position and identifies any areas to develop and act upon. Step 6 Ongoing service & relationship Monitoring your progress Where an ongoing service is agreed, your Adviser will help you review your Personal Financial Plan (PFP) to make sure it is on track with your objectives. Reviews will take account of any changes in your personal circumstances, financial market conditions and relevant legislation. DEVELOPING A PERSONAL SERVICE PC Financial Services realise that every situation is different and every individual is unique. We ve therefore developed a range of services which can be tailored to meet your specific needs no matter how complex. We will work in partnership with you and look to develop an excellent working relationship that will evolve over time. Ongoing fees will depend on the type of relationship you choose to have with us and will be discussed and agreed with your Adviser. Of course your circumstances may change over time and we will be flexible in the way we work. Rest assured that however you choose to develop your personal service, our four key principles honesty, integrity, reliability and value will underpin our relationship at all times. The importance of tailoring a new client meeting: > Very early in the first meeting consider asking these critical questions: OUR RELATIONSHIP AND HOW WE GET PAID Fees incurred for our professional offering will depend on the services you want and the type of relationship you wish to have with us, either over the short term or on an ongoing basis. We will agree actual amounts on a case by case basis dependent upon the amount of work required. We will of course provide you with a full explanation of our fees prior to going ahead. Generally speaking, we charge for our services on the following basis: No charge for the initial meeting and information gathering we will bear the cost of this. A fixed fee for conducting research and the preparation of your outline plan. This will depend on the extent of work required, subject to an agreed minimum and on its length and complexity. For product selection and implementation we would then typically charge a percentage of the amount invested. This will of course depend on the nature of your Personal Financial Plan (PFP). Once your Personal Financial Plan (PFP) is in place we'll continue to work closely together in line with your needs. We look forward to working with you to help you build a secure and prosperous future. CONTACT YOUR LOCAL ADVISER TO FIND OUT MORE GENERIC LOGO Tel: XXXX XXXXXX or Name@company.co.uk a) What has been your experience to date of dealing with a Financial Adviser? b) What are your expectations for today? > Following on from these questions you may chose to spend more time articulating the value that you deliver to your clients taking into account the responses to questions a) and b) above New client storyboard: > As a suggestion you could download this framework and then write your own copy based on some of our ideas and take this to a local printer who will be able to create your own version. Remember to get the content checked by your own compliance team before committing to final publication. Why you?...most adviser firm can articulate: > What they do i.e. Financial Planning/Solutions, Pensions, Investments, Mortgages etc > How they do it. i.e. The Sales process Ask Understand Research Implement etc But, can they provide a compelling reason as to why them? Why their firm? The what & the how are hygiene factors, the why will differentiate. Think about your why, how can you explain this? > For further information please refer to our Adviser Guide The Marketing Toolbox. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 13

14 Understanding the cost of delivering an ongoing service In the past and depending upon your business model, trail commission has traditionally been taken to offset the cost of advice as well as providing an ongoing service. There was often little science involved in ensuring that the trail commission was sufficient to provide the levels of service being offered or having a sense where, when the level of the sum invested was significant, whether the trail % should be scaled back. There now needs to be more transparency and clarity around the level of ongoing service the client receives and the level at which you will charge for and be remunerated for delivering this. The starting point in understanding your cost of service is to clarify the process you follow in giving ongoing advice or a service to your clients. Cost to deliver High PROACTIVE An ongoing service focused on reviewing and maintaining a plan to achieve a range of financial goals and objectives. Frequency and nature of content as agreed. REACTIVE A transactional service that requires minimal or no ongoing service. Supported by a menu of charges for additional work when needed. Low Client bank This diagram reflects a basic approach to differing servicing propositions based on your business' cost to deliver. You may choose to have a number of differing ongoing service propositions to suit your client bank and business model. For example you may have a reactive proposition which is essentially a pay as you go proposition where clients are charged for the support and help they ask for, when they ask for it. Your menu of ancillary services would detail these further. In addition to pay as you go, you may choose to have one or more levels of a proactive service proposition that may differ in the level of support provided, the frequency and nature of client contact and any ancillary services they may want to take advantage of. Your charging structure would need to reflect the time involved in delivering these levels of service. 14 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

15 The importance of review: > Clearly an effective review process is all about ensuring that you continue to deliver value to your clients as their circumstances and priorities change however what is not so well known or appreciated is the need to effectively articulate and demonstrate that value on an ongoing basis. > For some clients an effective review may involve simply looking at one policy only e.g. An Investment Bond and deciding what do to next with that policy and for other clients it may be far more effective to review their whole financial position and to discuss plans across a number of policies or identified priority areas. > Without this effective demonstration clients are far more likely to become complacent and take you for granted and worse still it may mean that they become more vulnerable to approaches from other potential would be suitors in the form of other financial advisers. > One final point to bear in mind is that with the continuing downwards pressure on revenues it will become even more important to keep the value that you offer in the forefront of the client s mind. Clients and profitability: > When it comes to running a successful sustainable business it is vital that you take on new clients on a profitable basis and that having taken them on you agree to service them on a basis which remains profitable. > With this in mind it is important to have at least a working knowledge of what revenue needs to be generated from new or existing clients. For existing clients this will of course be dependent upon the level of ongoing service on offer. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 15

16 Proactive vs Transactional Service Offerings There are two basic approaches to providing an ongoing service proposition. The first is where you have initially provided an advice only service (transactional) and the client does not want or need an ongoing service so may be reluctant to pay. You need to decide whether there is any cost associated with keeping client records, PI, correspondence etc. If it is likely to be relatively small you may choose to absorb this cost into your business or charge a nominal client file maintenance fee. You can supplement this by providing a menu of additional charges for ancillary services they may require in the future. This reactive offer will provide the client choice and it prevents you from giving the service away for free. The second approach is based on the principle that the client will need some degree of proactive ongoing servicing. Pricing should therefore be based on the amount of effort applied as well as the benefits and value provided. This could be paid for via a fixed price per annum or % of assets or funds under management or advice and based on the cost to the business (and your profit margin) of providing the frequency and nature of the support required. The boxes opposite consider examples of what you may want to be included under the headings of proactive and reactive servicing strategies. Proactive service The Financial Planning Service (example) > Annual face to face review meetings (frequency to be agreed) with your adviser including: review/reassessment of your risk profile complete review of your financial strategy update to your XYZ Business full financial health check suggestions regarding any actions required > Telephone and access to your adviser calls and s generally returned within x days/hours priority service available within 24 hours > Access to dedicated support team dedicated point of contact or central number > Agreed number of telephone reviews between formal review dates frequency as agreed > The professional service liaise with/providing strategic updates to your professional advisers providing tax advice and solutions in conjunction with your tax advisers supplying end of year taxation information as required > Client seminars invitations to relevant market professional seminars > Any other relevant services from your menu of ancillary services Reactive service Pay As You Go Service (example) > No formal agreed ongoing service/advice meetings are in place > Central administration point of contact for client queries > Ongoing file maintenance > Valuation forwarding service > Supported by a menu of ancillary services detailing the fees associated with any additional work/services required 16 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

17 For those with more complex client banks you may wish to refine your proposition further, offering a range of service packages, for example full discretionary wealth management for certain High Net Worth, clients with a standard service offer for clients with less complex needs. The following examples use the traditional A, B, C segmentation process and shows the link with developing suitable client propositions; there are also some ideas of what might be included in a client proposition. Example of Potential Service Strategies PROACTIVE REACTIVE A: Financial Planning B: Financial Advice C: Financial Solutions > Requires full holistic plan > Active fund management > Over xxxk under management or willing to pay for the level of service > Values long-term relationships > Values regular face-to-face contact and advice > Potential to do even more business in the future > Desires a minimum of one review per annum > Able to offer high quality referrals Examples of Client Profile/Client Requirements > Requires full holistic advice > Over xxk under management > Values long-term relationships > Values less face-to-face advice > Takes responsibility for financial planning > Able to offer high quality referrals > One-off single sales > No requirement for ongoing service > No interest in holistic proactive planning or advice > Unclear about financial goals > Pay as you go client NB: clients only need to display some of the above characteristics, it is not essential for them to require all of the above. Examples of Potential Service Offering > Expert financial planning > Commitment to first class customer service with Service Level Agreements (SLAs) > Quarterly written valuation/review pack with optional faceto-face review > Proactive face-to-face Review at a time and frequency chosen by the client > Fund valuations on request > Exclusive Member access to dedicated part of website > Dedicated point of contact and dedicated Administrator > Access to Specialist Advisers e.g. Solicitors, Accountants > Newsletter/budget updates via quarterly > Invite to relevant client seminars > Free annual will update > Full administration and file maintenance > Expert financial advice > Commitment to first class customer service with SLAs > May require less frequent face-to-face support or maybe telephone based support > Annual written valuation > Website access > Invite to relevant client seminars > Menu of charges for additional adhoc services > General administration and file maintenance > Expert financial solutions > Commitment to first class customer service > Separate menu of charges for additional adhoc work > Website access > File maintenance NB: These are examples of what the Practice may consider offering. It is important that the Practice understands what it's clients needs are and it's ability to deliver the required service. The Practice may choose not to offer all of the examples listed above. The starting point when developing your proposition is to list everything you could or might want to provide for the client. Once you have built this it can be edited and refined until you have a clear understanding of what you are looking to offer each client group. Clients may choose to change their service proposition based on what they want not what you think they need. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 17

18 > Pricing Services Business Vision and Objectives Action Planning Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing services Services Proposition(s) This is a complex and critical area and the method and level of pricing will vary from Practice to Practice and also between the various propositions. The benefit of having clearly defined propositions is that it is easier to establish the true costs of what you are intending to offer. This will allow you to price your services accurately, ensuring the Practice is profitably remunerated for all the work undertaken on behalf of clients. Implementing the Action Plan Aligning Process with Annual Business Plan However, as the diagram below indicates there is a balance to be struck between what you charge and what the client perceives they are getting for their money. Historically many firms have operated on a cross-subsidy basis. However, in future many models will be more closely aligned to that of other professional services firms where they know that each individual client is profitable. The starting point is to fully understand the process you follow in giving advice to your clients. Advice Process There are of course many different advice processes in the market and some firms will use their process as a differentiator. This guide provides a framework for you to utilise as you develop your thinking around this and we have highlighted a typical example of how some firms operate on the following page. Does the value of your advice and servicing proposition in the client's mind outweigh the price they are expecting to pay? Value Once you are happy with the theory you can document your own sales and advice process and price it accordingly. During the early stages of developing the client relationship, the client is making a series of buying decisions about you, your firm, you proposition etc. It is therefore vital that your proposition and advice processes reflect this as clearly and appropriately as possible and you are able to answer any concerns they may have. Traditionally not all advisers fully explain or demonstrate this process so they can often feel awkward talking about the cost of the work delivered. This can leave clients unclear about the full benefits of working with a financial adviser. Remember to focus on client value not price Price 18 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

19 Charging for your services: > In terms of how you charge the client, there are a range of models currently in use across the market. These can be summarised as follows. It is important to carefully consider which pricing model is likely to be the most attractive to your target clients. This could be: > Hourly rates. > Fixed price fee for specific types of work e.g. full financial review, ongoing annual servicing, transferring pensions etc. > Fixed project fees based on an estimated time/cost basis. > Fee based % of assets/funds under management. > Fee based on % of tax saved. > Combination of the above. It is unlikely that one size will fit all so you should think about the approach that will work for the majority of your clients. Be prepared to review and reappraise this after a period of time. As a rule of thumb you should consider in your calculations, how many weeks per year you work on client activities and how many client billable hours* per week you can deliver. For example, you could work things out based on assuming 40 weeks worked per year (after holidays, bank holidays, client seminars etc) and 25 client billable hours are available per week. This equates to 1,000 client billable hours available each year. * Client billable hours is time spent on client related activities that could be charged for i.e. face to face meetings, telephone contact, research/analysis, report writing, client related travel etc. For further support on this please refer to our Adviser Guide Creating a Profitable Charging Structure. When it comes to working out the cost to the Adviser firm of providing advice it can be useful to refer to a profitable hourly rate however you should consider carefully how to use it when discussing with the client how much you charge for your services because: > It focuses the conversation on cost instead of on value. > The client is likely to be thinking how long is this going to take? > A standard hourly rate takes no account of the value premium you may be looking to charge. > Ultimately by using an hourly rate you effectively cap your earnings for any given period. Don t undervalue yourself or what you do. Where do you really add value for your clients? How much should you get paid for this? For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 19

20 What do customers really value from their adviser? One of the key findings highlighted in the J.P. Morgan research was that competitive charging is not the most important aspect of financial advice for consumers. Drivers that make consumers willing to pay an adviser % of respondents 0% 5% 10% 15% 20% 25% 30% 35% Independent and not restricted in their advice 34% Face-to-face meetings whenever I need them Member of a reputable recognised body Explains things in a way I can understand Strong performance track record 29% 28% 27% 25% Highly qualified Makes me feel comfortable and at ease Competitive charges Recommended by friends or family Offer interesting investment ideas I wouldn't think of 19% 18% 17% 15% 14% Give me online access to my investments Recommended by another professional Keep me in touch with investment news 8% 8% 9% Source: J.P. Morgan Asset Management/ICM. 05/2011. Base: Non-rejecters of paid-for financial advice (234). When it comes to what clients really value Product is an implicit part of the transaction but it is not a critical driver for the relationship to be successful. In short financial advice is about the relationship with the client not about the transaction that takes place 20 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

21 Getting Your Structure Right Which structure is correct for your Practice will depend on a number of factors, including your vision for how you ultimately see the business operating. When considering your pricing structure you should take expert advice and ask yourself a number of questions such as: What is the pricing model history of the business? What is the client charging experience/and or expertise of the business? What is the clients perception of the value delivered by the business? Who are the current clients/and or target clients of the business? The simpler your proposition(s) the easier it will be to price and explain to clients. Make sure you model or pilot any new charging structure to avoid shocks to the Practice cash flow. For more information please refer to the Adviser Guide Creating a profitable charging structure. What is the profit margin required? What is the cost of providing clients with this level of service? How many people are involved in delivering the service? How are Advisers within the business remunerated? What is the level of client servicing required? What is the normal portfolio size? What is the direction of the regulator? Where is the business located? What are the tax implications for the client, if any? How does pricing affect the future valuation of the business? What might the impact of VAT be on your charging structure? The answers to these types of questions will ultimately inform your final decisions regarding the costs of your service and how they will be charged, the key issue being that the remuneration the Practice receives from the client must outweigh the cost of provision and include a clear profit margin. To establish your detailed pricing structure and charging method you will need to understand your underlying cost base. You should also revisit your initial research to establish what clients truly value and therefore, are willing to pay for. This is also a competitive market so some local market research may also prove useful. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 21

22 > Assessing Resources Business Vision and Objectives Action Planning Implementing the Action Plan Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) Aligning Process with Annual Business Plan A vital element of this process and one that is often overlooked; do you have the infrastructure and ability within the firm to deliver the proposition? There are two main areas to consider: > Technology/systems: what is in place currently, what needs to be refined, what needs to be acquired or established? > People: are your people capable/ willing to change their processes, what training do they need, do you have the right people in the right roles? The new proposition may drive some structural changes in the business. It is quite common for some Advisers to move away from being generalists for example, to offering specialist advice in certain areas to support the overall proposition. Certain firms have moved along the route of having specific servicing Advisers. It is also quite common to give responsibility for managing the client database to a specific individual, often the Administration Manager whose role it is to flag the non-delivery of any key elements of the service proposition. The outcome of this review should feed your implementation plan but may also cause you to revisit your proposition and the relevant charging structure. Remember the impact of Treating Customers Fairly and only commit to service levels you can consistently deliver and on a profitable basis. > Action Planning Business Vision and Objectives Action Planning Implementing the Action Plan Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) Aligning Process with Annual Business Plan It is important that you develop an implementation plan as this will give you a map as you start to introduce changes to the business and the way it operates. This doesn t need to be onerous but a small amount of time planning at this stage will save a considerable amount of wasted time at a later stage. Consider all the elements that may be affected by the change and set yourself some key actions and timescales. Look for overlaps and dependencies and be realistic. Consider working with someone from outside the business at this stage or giving someone formal responsibility as Project Manager. 22 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

23 > Implementing the Action Plan Business Vision and Objectives Action Planning Implementing the Action Plan Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) Aligning Process with Annual Business Plan The opportunity to take your proposition to market Consider how comfortable your other Advisers are with this journey and be prepared for difficulties, take small steps and ensure you communicate and reward initial successes no matter how small. Consider whether you need to change the offering for all clients from day one. Should you be running a pilot, are you going to see existing clients as they come up for regular service, write to them en masse or run a specific campaign? Understand that there will be difficulties and you may lose some clients along the way but stick to your guns and be clear of where you are going. Speak to your administrators or Practice Manager, they will have a good idea of what commitments are being made and followed through and where issues tend to arise. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 23

24 Implementation for your new clients and the transition with your existing client bank Before you proceed towards implementation and transition, consider the following questions. If you are not yet comfortable with your answers to any of these, you may wish to revisit some of the previous sections before pushing ahead with implementation. Are you ready? Are you comfortable that you have set a sustainable pricing strategy that is profitable for both new and existing clients? Are you clear about your advice and service propositions? Do you have the right supporting materials to support this? Have you a clear strategy to pricing for advice, implementation and providing a range of ongoing service propositions? How does your hourly rate fit in to this? Have you researched or tested these propositions or materials? Have you reviewed your capacity to deliver the service propositions you have designed? Are you comfortable in asking an existing client, who has already paid you initial commission, to now pay you each year in order to be transferred on to your new service proposition? 24 Developing A Client Proposition :: Adviser Guide For Adviser use only not approved for use with clients

25 > Business Vision and Objectives Action Planning Implementing the Action Plan Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) Aligning Process with Annual Business Plan It may seem obvious but not everything will be perfect Set yourself regular review points and refine the details as you go along. Involve as many people as possible in the review and look for insight. Don t forget to review what s working as much as what needs to change. Build on successes and change what isn t working, just be careful it isn t issues with the people rather than the proposition. When reviewing, focus on issues of content and process, manage feelings separately and on a 1:1 basis. > Aligning Process with Annual Business Plan Business Vision and Objectives Action Planning Implementing the Action Plan Current Working Practices and Client Offer(s) Assessing Resources Segmenting Bank and Conducting Research Pricing Services Proposition(s) Aligning Aligning process Process with Annual Business Plan Plan Developing your proposition should not be seen as a one off process although hopefully future changes will be limited to ongoing refinements. and refining the proposition should become a natural part of the annual planning process. Constant review and refinement will give the Practice a market advantage as well as ensuring the proposition becomes embedded in the muscle of the business. The size of the changes you will need to make will essentially depend on where you are starting from, the size of the firm and the complexity of your markets. It is important that you communicate clearly with your staff, Advisers and your clients throughout the process addressing their concerns without returning to old working practices. Persistence, clarity and vision will help you make the transition to a business that is closely aligned to its clients needs and ultimately more profitable. For Adviser use only not approved for use with clients Adviser Guide :: Developing A Client Proposition 25