Advisers concerned about servicing lower-value clients under the proposed Future of Financial Advice (FoFA) opt in rules may be overlooking profitable alternatives to discarding or selling them.
While the final version of the reforms is yet to be decided, many licensees and planners are hoping to second-guess the legislation by restructuring their businesses.
However, Russell Investments practice development manager, John Nolan, argues that advisers should do everything they can to provide more services to lower value clients before considering alternatives.
“Having a clear strategy is important as these clients can make up a large proportion of many client books,” he says.
Historically, many advisers have serviced their lower balance clients through older, out-dated and, in some cases, expensive legacy products.
This has typically been possible only through higher balance clients subsidising the cost of advice delivery.
With transparent fee disclosure and opt-in for new clients Nolan says many advisers are considering selling or forsaking portions of their client books containing lower-value clients, to enable them to demonstrate value to, and retain, the more profitable A- and B-grade client segments.
“Lower-value clients represent a significant portion of some advisers’ businesses, and while these clients may not be currently profitable, advisers should consider a ‘move up’ strategy before implementing the ‘move out’ approach,” Nolan says.
“The cost of acquisition alone suggests that advisers should do everything they can to provide more services to lower-value clients before considering alternatives.
“When clients are not interested in a broader service offering, advisers should look to reduce the cost of maintaining these client relationships.”
Nolan says Russell has been in consultation with advisers to find FoFA-compliant solutions that would enable advisers to maintain relationships with clients who are not classified as high value, and who are unwilling to commit to a higher level of service.
“All the advisers I talk to want to do the right thing by their clients, but the relationship has to be a profitable one. If there’s no junior adviser in the office to look after lower value clients and no other way to reduce the cost to serve, then naturally the focus should turn to the cost of delivery – specifically product fees,” he says.
Russell Investments has seen increased interest in recent months around its SuperSolution Master Trust Private Division, which provides an alternative option for managing low value clients in a post-FoFA environment.
