advisory distributors - meeting of minds - findings

Tuesday 28 June 2016 - Tylney Hall Hotel, Hampshire RG27 9AZ

ADVISORY DISTRIBUTORS

XX1

1 | P a g e This document is the copyright of Owen James. If you have any questions about any aspect of this document,

do please call us on +44 (0)1483 861334 or email Hazel Izzard at [email protected]

The Findings Tuesday 28 June 2016, Tylney Hall, Hampshire

1. Summary .............................................................................................................................................................. 2

2. This Report ......................................................................................................................................................... 2

3. The Strategic Partners ...................................................................................................................................... 3

4. The adviser market place – consolidation heaven! Where are we heading? ...................................... 4

5. Is vertical integration the future for advisory firms? ................................................................................. 6

6. Maximising productivity; who said you couldn’t get blood out of a stone? ........................................ 7

7. Forecasting the future: what might your business look like in five years’ time? ................................ 9

8. Health, wealth and happiness – a look at behavioural economics ....................................................... 10

9. Client experience (CX) - how would your proposition stack up on “TripAdvisory”? .................. 13

10. Building a multi-generational client base by combining nobility of spirit with a canny commercial

hat 15

11. Robo adviser – the on-line challenge. Are you up to it? ........................................................................ 17

12. Two become one – pre and post-merger best practice and lessons learnt ..................................... 19

13. Proof of suitability is now obligatory – how do you ensure that you have the evidence? ............ 20

14. The workplace as a new business opportunity ........................................................................................ 22



1. Summary

The 21st Meeting of Minds Advisory Distributors took place on the 28th June 2016 at Tylney Hall,

Hampshire. This document summarises key issues raised in the topics discussed during the

roundtables that took place on the day.

A Meeting of Minds Advisory Distributors is a strategic forum organised by Owen James. It is an

opportunity for some 60 plus CEOs and CIOs of the top 60 Advisory firms; product and service

providers and industry experts to meet in a neutral environment where they can examine industry

issues and opportunities and develop business strategies to address them.

This Meeting operates two streams - the CEO stream brings together those individuals who set the

overall strategy for the firm - be it a national, network or consolidator. The CIO stream brings

together those involved in setting their firm’s investment strategy in terms of the products and funds

they market to their clients.

Participants enjoy access to strategic insight, active involvement in shaping the industry and

networking at the highest level.

The core of the Meeting involves a series of boardroom style sessions addressing a pre-researched

and pre-agreed agenda, with open discussion led by objective and professional moderators. External

speakers spark debate and encourage fresh and original thinking.

To find out more about taking part, please contact: Emily Landless at Owen James:

[email protected] or you can contact her at 01483 861334.

2. This Report

The Roundtable Sessions were moderated by:

Mr Rod Bryson – Capgemini Consulting

Mr Malcolm Kerr – EY

Mr Roderic Rennison – Rennison Consulting

Mr Lance Peltz

Mr Innes Miller - Scydonia Wealth Markets Consulting

Mr Rory Curran – Rory Curran Consulting

Mr Jeremy Oakley- KPMG

We are very grateful for the time and energy they have expended on making A Meeting of Minds

Advisory Distributors a success and hope you will consider this report an interesting, thought-

provoking and accessible read. As ever your feedback is much appreciated.

We would also like to thank the independent experts who were part of the sessions for sharing

their knowledge and giving us their time and energy both in the run up and on the day.

mailto:[email protected]



3. The Strategic Partners

We would like to thank all our strategic partners, without whom the event would not have been

possible. The following groups took part in the Meeting and their motivation for taking part is

threefold:

To be, and to be seen as being, supportive of the industry;

To understand the stresses and strains being placed on the industry and, where possible,

respond to them; and

To talk openly with these business leaders with a view to ensuring that their businesses are

strategically aligned.

Strategic Partner:



4. The adviser market place – consolidation heaven! Where are we heading?

Moderator: Lance Peltz

Expert: John Chapman

Key message To set the scene, a sample of recent consolidation activity in our industry has been:

Standard Life (through its subsidiary 1825) has just acquired Munro Partnership Limited

following the recent (March 2016) agreement to acquire Almary Green and Pearson Jones in

May 2015

Old Mutual buying Quilter Cheviot following on from Intrinsic (2014)

Brown Shipley buying Hampton Dean

Close Brothers bought EOS

Succession have recently raised funding through HSBC

Harwood’s recent IPO raising a GBP 25m warchest

Aberdeen purchasing Parmenion.

And the mega deal - Tilney & Towry (and all the firms that have been absorbed along the

way e.g. Ashcourt Rowan, Baker Tilley, Bestinvest, Ingenious, Thurleigh etc.)

Key themes

The motives of the vendors and acquirers can vary considerably and whilst the participants

all agreed that the client interests should be at the heart of the transaction this may not

always be the case (or at least, not clearly evident).

o For the vendor the motives probably fall into one of three categories:

Realise value / exit plan: This is often driven by the demographic reality of the

owners/principals

Synergies: Manage (or cope with) the increasing regulatory cost, both cost and

bandwidth.

A route to grow the business

o For acquirers the motives relate more to the business model, which in the real

world is usually a combination of:

Product providers/Vertical Integrators: Looking to control/own the value

chain

Wealth Managers : acquiring financial planners to add to their service channel

Consolidators: Essentially taking out costs, often backed by Private Equity and

so also looking for an eventual exit

Segment (e.g. SIPP) acquirers looking to build market share

Networks : looking for alternative growth routes

Digital/Fintech: A potentially cheaper route to client acquisition



This raised the topic of the difference in expectations between vendor and purchaser with

the recent volume of activity, possibly stoked by Private Equity interest and brokers raising

vendor’s expectations. “Prices are becoming fluffy” noted one participant. This is invariably

chipped away by the due diligence process.. The exit multiple is significantly enhanced if the

business has a technology platform and control of the assets through an owned DFM service.

Client interests was a consistent thread through both roundtable sessions, particularly in the

context of meeting suitability requirements versus the trend to move acquired clients

towards the new firm’s investment position, particularly if they were a vertically integrated

firm. Most participants thought that this was a challenge that had yet to be fully addressed by

the FCA.

An interesting observation was that there remained good choice for the acquirers but there

had been a noticeable improvement in the quality of the (IFA) companies being offered for

sale and that this was as a direct consequence of RDR, although no acquirer should be blasé

about potential for legacy issues.

One aspect, discussed in both sessions, albeit differentially nuanced was the impact of

consolidation on adviser numbers. All participants agreed that the market place was under

provided for. Some participants believed that consolidation would lead to fewer firms, Owen

James have cited a figure of c. 5,400 firms currently but there was no agreement as to how

this would look like a few years down the line. The optimists believe that there would

always be natural replenishment – consolidation will not always work and there will be

breakaways along with new entrants to the industry. The FCA seems to be supportive of

new DA firms and that obtaining PI insurance will not be a limiting factor.

On the plus side - Consolidation will lead to the scale that can support well-structured and

resourced training programs for graduates and those seeking second careers. Intrinsic’s

acquisition of the Financial Adviser School was mentioned as an example of scale supporting

these resources.

Fintech did not get much of a mention however it was voiced that the cost of acquiring

clients for fintech businesses has been very high and there is a possibility of fintech firms

entering the consolidation marketplace in the near future.

Conclusions

A theme common to both groups was that the cultural fit of the deal must be right and that

the proposition must add value to the client. However one participant noted that “these

deals seem to be more about the numbers than the people” and that “many transactions

don’t work because it is a financial transaction rather than a cultural fit”. Whilst this may not

be a revelation it remains a valid conclusion.



5. Is vertical integration the future for advisory firms?

Moderator: Malcolm Kerr, EY

Expert: Darren Bayley and Kevin Russell SEI

Key message SEI provides technology and support services that enable larger firms to establish and run their own

platforms. This is an important component of a VIF. The model tends to make economic sense

where there is exiting AUA of around £1.5bn and new business volumes in the region of £350m pa.

There is over £30bn sitting on SEI client platforms.

Key themes

There was some confusion as to exactly what constituted a VIF and some advisees had concerns

about the level of charges and potential lack of transparency. Towry was mentioned as a very

expensive model.

Where a VIF does make economic sense the cost savings can reduce client costs and/or generate

addition revenue to the firm.

The advisers operating a VIF (out-sourced to SEI) seemed highly professional.

Some attendees felt positive about the concept others less so. Several quite large players hadn’t yet

given the issue much thought.

Conclusions

What are the next steps? (e.g. key messages to government, regulator, etc; action orientated

conclusions they would like Owen James or one of our associates to take on their behalf.) Next

steps may be wider than the headline findings, if required.

Clearly VIF’s are gaining traction and have the potential to improve customer outcomes and adviser

profitability.

It is understood that the FCA has some concerns regarding whether or not every VIF has the

capabilities required to run funds and platforms; albeit via third parties.

Maybe we could have a regulatory perspective presentation at a future meeting.

A true VIF will also establish and run the investment solution. This can also be out-sourced. Some

advisers around the table thought this was of equal if not greater importance than the technology

solution. It seemed that it wasn’t 100% clear exactly who was responsible for the governance of the

technology from a regulatory perspective.



6. Maximising productivity; who said you couldn’t get blood out of a stone?

Moderator: Roderic Rennison, Rennison Consulting

Expert: Matt Crabtree, Positive Momentum

Overview With margins continually being squeezed, it is not surprising that CEOs seek to get the most out of

their sales forces. However the successful optimisation of any team will depend on the ability to not

only free them from administrative tasks through cost-effective use of technology, but also through

the concerted effort to obtain good management information about the clients.

The session led by Matt Crabtree of Positive Momentum considered how you build and structure

teams to optimise results as well as considering training and motivation of front line staff to meet

client needs.

Opening Comments

Just because you can measure something, it does not mean that you should.

There are a number of pre-requisites to maximising productivity:

Get buy-in from the workforce as a whole

Don’t let finance control the process

Implementation of MI is based on its usability; therefore get engagement from first/front line

management

There are three measures that matter:

Activity – a “quantity of quality”

Conversion – effort versus success (It is not pipeline conversion)

Average order/deal value

Key themes

The importance of leadership

Effective leadership drives adoption.

Getting advisers to adopt change is challenging and there are some important aspects to get right:

Positioning the change in a way that those affected like it. “The change we like is the change we

chose”.

Making the change(s) intuitive. They should feel natural rather than appearing challenging to put

into effect.



Involving those who are affected by the change in the process

It is important to involve those people who will be involved in putting the change into effect. Get the

people who will use the system to design it.

Change is best implemented by influencing people not imposing change without consultation. It’s

therefore important to pay attention in a financial planning context, to what advisers want.

It is also important to avoid being dogmatic about the change process; what’s important is that the

objectives of the change process are met.

Ensuring the right level of support for advisers

The appropriate level of support for advisers will depend on the type of financial planning firm, and

the types of clients that they are advising and servicing. It’s important therefore to be clear on

whether more support is required at the “front” or at the “back” of the model.

It is also important to ensure that advisers whilst able to provide input to helping ensure processes

are optimised, are not able to dictate or hinder the desired change occurring.

Having a CRM system that works for the business

There are frequent debates about whether it is best to buy-in and implement a CRM system or to

build it in-house. The needs of the business affecting the change are paramount; there is a balance to

be struck between buying in a system or software that may be too complex or over-engineered and

so the business does not get adoption and/or buy-in and therefore value, or alternatively building the

processes in-house. This latter option brings with it the need to maintain and adapt the software

and thus having potentially heavy and unknown ongoing costs.

Conclusions

At all times, it is paramount to think about the impact of processes and system changes from a client

perspective rather than only from an adviser and support staff viewpoint. This translates into the

need to understand different client segments and demographics. For example, if the client base is

young and in the accumulation phase, they are likely to be more “tech” savvy and will be more likely

to adopt apps and tools than those of say retirement age. Conversely those who are retired are, on

average, likely to have more time.

Therefore, to achieve improved productivity, the need to know and understand the needs of those

in the business be they advisers or other members of the team, also needs to be balanced with the

needs of the clients.



7. Forecasting the future: what might your business look like in five years’

time?

Moderator: Rod Bryson, Capgemini Consulting

Expert: Andre Lennon Smith, PIMCO

Key takeaways

Building trust with clients will be critical in future as it is now and therefore advisers need to

continue to develop their relationship and propositions. This will not change even with new

technology or solutions. Maintaining trust will be critical.

Clients will still be at the heart of every successful advisory business but firms need to

continue their evolution and drive to become more efficient in their processes and charging.

There is likely to be ongoing advisory firm consolidation in the market but this should start

to slow in the next 12 months given the previous and current level of consolidation has been

relatively high and probably unlikely to continue indefinitely.

It was felt that overall adviser numbers are likely to remain at similar levels as they are today

given the relevant reduction in the numbers since RDR. However it was felt this has now got

to the point that further reduction was unlikely and in some circumstance may actually grow.

The value chain pressure for asset managers is likely to increase in the next five years but

Vertical Integration was inevitable for those larger and medium sized firms. For smaller firms

it was likely to remain unchanged.

Pensions – Accumulation/Decumulation likely to be key focus for advisers in the wealth

sector in the next five years given the challenges around pension planning, pension limits

reducing and overall demographics of clients. Therefore advisers need to be ready for

further conversations around the movement from accumulation to decumulation solutions.

Platforms are expected to continue to consolidate given the changes with a number in the

last 12 months alone such as 7im, AXA, Elevate, so over the next five years consolidation

would continue to a similar degree.

Platform charges are likely to reduce as the competitive nature of the market continues and

when looked at in comparison to the value chain, platforms continued to represent a

challenge for owners compared to other areas of the value chain.

D2C market unlikely to change dramatically for the core wealth market. Clients will require

lower cost solutions but for wealth clients they will still require face to face advice or

telephone advice to provide peace of mind. However for those clients with smaller pots of

money, simple solutions would be attractive. These solutions could sit alongside advice-

based solutions and form part of a holistic advice service.



8. Health, wealth and happiness – a look at behavioural economics

Moderator: Jeremy Oakley, KPMG

Expert: Richard Purcell, Vitality Life

Introduction

When looking at your proposition and the new world coming it is believed that as an industry we

should be adding more than just financially to our clients’ wellbeing and with it being proven that

people are over optimistic about their health it seems we could add value!

It was shocking to see that the brands that millennials are drawn to are food and beverage

companies.

Behavioural economics has a few strategies that allows us to influence behaviour. We know that

loss aversion is powerful. If clients were to get a pay rise of 20% they would be really happy and if

they were to get a pay cut of 20% they would be really angry! Vitality can show customers the

consequences of doing no activity, and also the positive impact of being active through the nudge

theory.

Vitality has a tool that will allow clients to work out their biological age through an algorithm built

into an age calculator which compares it to their actual age. Jessica Ennis-Hill, a Vitality Ambassador

is seen to be 24 even though she is 30! Only 17% are coming out younger than they are with a lot of

people coming out older. We need to come up with an innovative approach to improve their health.

Nudging theory - positive reinforcement and indirect suggestions will create a better behaviour.

Wearable devices are a big trend these days and with 40% of customers wanting to use technology

to engage in their health we can look at how we create a strong customer proposition around that.

Looking at rewarding their behaviour seems to be key!

Vitality has come up with a proposition which does just that, the more you do the more rewards

you get. This is great to engage the customers from a health and fitness perspective but it also keeps

customers engaged.

Stats have shown that people are doing 800 steps more each day because they are rewarded!

Vitality is innovative in that it harnesses new technologies to create a customer centric proposition

that supports them in understanding and improving their health, which in turn leads to lower claims.

Savings can be passed back to the customer in rewards to create a virtuous circle, which is the

foundation of Vitality’s shared value model.

Questions

How can we capitalise on the health and wellness opportunity?

We are keen to find out if our clients are interested in health and do they have a wearable device?

What’s stopping you from talking about health and wellness?

Questions around how long people are engaged if they are not healthy?

Engaged are they the ones that join the gym at Christmas?



Concepts like this? Do they make it easier for advisers?

Key themes

It was clear that knowledge around the products and understanding how they address customer

needs is key. When selling protection it seems that providers go to the likes of Aviva and L&G as

familiar rate driven providers. The advisers need to know more about the product and the benefits

that it offers – Vitality took this on board and will look at awareness strategies to complement the

160 business consultants on the ground who are there to engage and support advisers.

The benefits reduce the premiums - IFA to engage and put them in front of customers.

As an industry they don’t sell protection half as successfully as they could or should. The group

thought it could be because of the difficult conversation perhaps?

Sales training on how to sell protection seems to be key.

There also seems to be a snobbery around protection sales - it has grown about 40% take up has

been D2C but not through advisers.

The proposition seems to be a great tool to get into young families. The problem is all about getting

an extra level of service - engage in an interesting subject.

Consumers need to know what you do through your brand which will make it easier for us to then

sell.

There is a moral duty of care with clients. We haven’t found a profitable way to deal with this

proposition. We are speaking to 65 -70 years old - which is why it is probably not working.

We are all living longer but with what quality of life?! This is something Vitality is trying to address.

The remuneration for advisers is good for life insurance. Why don’t people push it? Is it perhaps

young people are selling the wrong product? Could young people talk to the young people?

It made us question who is talking to these customers about these types of products.

If the commission model went - you can’t advise it has to be a product that is just sold. Talks about

banning commission on general insurance.

Pru franchise model and it worked. Vitality has taken on the same role.

Do you talk about health at dinner parties?!

The industry are seeing a pickup in protection services.

Vitality Optimiser gives you the opportunity to take control of your health- if you engage and

improve your health, the protection premium goes down, if you do no activity and don’t engage in

your health, the premium can go up.

What is the end benefit of being fit and healthy when it comes to insurance? Are people aware of

the facts? You don't deal with the problem that the client has to face. The aim of the game is to help

them reduce the need for the product.

How do IFAs engage - one of the angles could be intrigue? Clients are too busy to think about it.

Take up between men and woman is quite even. Don't market well to women or the person that is

going to make the decision.

Faced with their husband retiring - focused on health.

Could we be targeting the woman more?

We as an industry could expand holistic financial planning to include life coaching - to help clients

achieve their goals, but we do feel we are 10-15 years away from there.



There was a concern the current Financial adviser base is often out of shape and not a good

advocate for health living propositions - 'look at you mate' giving your views on fitness!

1. Protection sales among wealth managers are low. Advisers are put off by perceived underwriting

complexities and prefer to concentrate on investment advice.

2. There is general interest among wealth managers in the concept of optimising your health in

order to enhance wellbeing and reduce insurance risk. This interest was understandably of a

personal nature. In particular the increased usage of wearables to monitor health and the use of

behavioural incentives to encourage healthy lifestyle were cited as factors that would grow the

market.

3. However, there are some constraints to the adoption of the Vitality approach among WMs.

a. Low awareness levels about Vitality and protection in general.

b. Protection sales are biased towards younger audiences, usually linked to mortgages, family

protection, self-employment, death in service etc. WMs focus more on over 50s with wealth to

manage.

c. By the time people have accumulated wealth, they often have protected assets already apart from

specialist IHT mitigation.

d. Some voiced concern that the remuneration of protection – i.e commission - sat strangely beside

investment advice fees .

4. The group did come up with ideas to test the market:

a. At Retirement – loss of employment benefits such as life cover and PHI needs to be addressed

through replacement products for the retirement years.

b. Partners of wealth creators are often concerned to maintain the good health of their partner for

the retirement years so perhaps advisers could target partners as well as the primary wealth

creator.

5. Testing younger age groups was also not ruled out:

a. Children of WM clients are often more active on the wellbeing front. They may not typically pay

advice charges but might be attracted to Vitality on an execution only basis.

b. WM firms might test digital D2C propositions to orphans, younger and/or lower value clients as a

way of looking after their interests without providing premium advice services.

c. As with most non-core propositions in a buoyant market, providers will need to spoon-feed firms

during test marketing in order to demonstrate potential rewards.



9. Client experience (CX) - how would your proposition stack up on

“TripAdvisory”?

Moderator: James Goad, Owen James Group

Expert: Marie-Laure Humbert, GSAM

Overview

Today, power is flowing to the individual and electronic connectedness is accelerating that shift. The

concept of CX is prevalent in every industry influencing all aspects of your business:

1. Acquisition – service is a key differentiator and a great way to attract clients.

2. Retention – happy clients do not move.

3. Growth - happy clients also recommend you – and become an advocate and brand loyal.

As an industry we have always relied on referrals for new business and we are now seeing the rise of

digital players such as VouchedFor to help facilitate the process. This trend is set to continue as the

significance of ‘independent opinion’ in clients’ selection process – including client referrals, ratings

and reviews – has risen by 15% in the last two years, more than any other customer experience

factor. But how would a client describe you to their friends and what differentiates you from the

pack?

When we asked advisers what they thought were the three main reasons that clients chose to do

business with them - their service, reputation and relationship management came out on top. And

this is reflected if we were looking through the lens of a client (see table below) in terms of the

reasons they would hire or fire an adviser.

Hire Fire

Service – 22% Less than superior service – 55%

Reputation / trust – 20% Poor investment performance – 21%

Pricing – 19% Poor advice – 18%

Investment performance – 11%

As you can see it is all about service!

Much of the debate around the table is centred on whether an adviser understands the clients’

unique needs; meets their goals; delivers on commitments; and is empathetic? It was agreed that

advisers are typically great at communicating with clients individually, but struggled with regular,

consistent, group marketing.

So how do you communicate regularly and consistently to your clients, but make it personal? And

what is the right balance between face-to-face and the use of technology? The merits of email Vs

postage Vs phone calls Vs social media were vigorously debated, and a pre-call or letter to clients



came out top in terms of getting noticed. However, the real litmus test was whether clients could

play back to you what you want?

However, here are five strategies outlined to maximise the client experience:

1. Client segmentation – As with the Airlines, treat everyone fairly but not equally by

adopting a client service matrix.

2. Client communications – Think about the client journey and the use of technology.

3. Client reviews – Make it an experience.

4. Client education – Provide information in a simple, interesting and visual way.

5. Client events – Include their family members.

So to conclude, to deliver a great client experience and stand out from the crowd we cannot rely on

expertise and outcomes. As advisers, we need to leverage off a blend of our soft and interpersonal

skills, and traditional expertise in delivering the defined ROI and client goals.

Next steps

1. What does good CX look like?

Some examples of best practice in terms of what is happening around the world?

Lessons learnt from other industries – eg pharmaceutical.

2. How do you measure CX?



10. Building a multi-generational client base by combining nobility of spirit with

a canny commercial hat

Moderator: Innes Miller, Scydonia Wealth Markets Consulting

Expert: Marie-Laure Humbert, GSAM

Key themes

Building a multi-generational client base provides advisers with the opportunity to develop

deeper relationships with families, in the process building greater dependency between the

adviser and client.

By doing so advisers have the opportunity to broaden the services they provide, adding more

value to the relationship. Client relationships can be retained across generations and economies

of scale can be achieved by serving a number of individuals from the same family.

By engaging younger family members, owners of advice firms can use this to provide recently

qualified advisers with the opportunity to build a client facing experience. In addition to providing

succession in the client bank, serving families can address the issue of business succession too as

it allows younger advisers to grow and develop into future business managers or owners.

To succeed in serving a multi-generational client bank a different approach is required. Personal

coaching and other soft skills are required to build trust and engage families in open

conversations about money. Being able to manage the complexity that exists in family dynamics

presents new challenges, but also new opportunities.

Parents often find it difficult to talk about money with their children. For those approaching a

time when they will attend university, or start work, financial education can be a valuable benefit

the firm can offer - and one that can be paid for by the parents.

Millennials have different needs and expectations, with technology playing an ever increasing role

in their lives. To engage with this group, advisers should consider hiring people who understand

this group: millennials – and develop technology led propositions that appeal to their needs and

attitudes towards financial advice. A key part of the service could be debt advisory, where during

the early years it’s about helping millennials reduce debt and start to save for a deposit to buy a

home, for example. When assessing the value of serving millennials, advisers need to consider the

overall value of the family relationship, as opposed to the individuals within it.

Considering the needs of parents and grandparents, people are living longer and are consequently

adopting a different approach to managing their money. Some families are passing on their wealth

sooner. For example, grandparents paying for school fees or once in a lifetime experiences.

While others are keeping their wealth longer to support life expectancy. Both present cash flow,

tax and inheritance planning opportunities.



To develop an intergenerational planning service, firms need to consider:

- The resources and capabilities that need to be in place to deliver such a proposition.

- Relationship management and new business development skills that may be different to what

the firm has in place today.

- How they develop or acquire the skills to engage family members in discussions about

money, inheritance and future wealth creation.

- Financial education: managing money basics, managing family assets and inheritance, managing

and mitigating money-driven family conflict.

- Debt and credit management advice for family members at the early stages of their careers.

- How technology can be used to engage the family – from grandchildren to grandparents .

- How the service should be marketed – does it for example require a new brand?

- How should it be priced? Should the price and service relate to the full service provided to

the family – or should individual family members pay?

Conclusions

There is a growing opportunity to serve families, driven by inheritance tax planning

Firms looking to serve this market should create a clearly defined proposition dedicated to

serving the needs of families

There is a greater opportunity among high net worth’s with more complex needs: it may be

difficult to justify for the affluent market

A different approach is required – advisers will require the necessary skills to engage the family in

money conversations. It may be worth sending them on a coaching course

New techniques may need to be introduced – for example gamification and the use of technology

to support discussions, client engagement and ongoing client servicing

Professional connections also have a key role to play and the adviser has the opportunity to take

the lead in managing these relationships. By doing so, a premium can be applied to the fees being

charged as it will ultimately save the client personal time and effort



11. Robo adviser – the on-line challenge. Are you up to it?

Moderator: Rory Curran, Rory Curran Consulting

Expert: Kevin Russell, SEI

Key themes

Varying interpretations of what ‘robo advice’ actually means and where it could fit into an advice

process.

- ‘Robo advice’ as a term is a misnomer. No true end to end automated process exists yet.

- There are processes where robo technology could play a greater role: workplace (Employee

Benefits) and improving client service (Wealth Management)

- It is also believed that it would play a critical role in simplified financial advice and/or guidance

(Advice Gap)

- For most firms, a hybrid model of technology and human interaction would be relevant.

Complex financial planning requires human brain power

Some concerns re implications for advice models exist, but more see this as an opportunity to

extend their engagement model and client value propositions AND to improve the efficiency of their

operating model.

Hybrid models likely to do better in short to medium term, particularly where client situations are

complex, e.g. in retirement planning – High degree of interest in solutions that make the advice

process / back office more efficient, but feeling that this is digitisation/automation, rather than ‘robo’.

There is high interest in robo (automated) advice to improve efficiency and reduce costs but there

are a number of obstacles.

- The technology has to be developed. There is no perceived supplier in the market at this point.

- Trust in relationship, data security and capability to deliver good outcomes is key to consumer

engagement.

- Regulatory acceptance and framework to incorporate automated advice. For example, regulation

currently forces ‘full advice’ rules on simplified/guided advice process. Therefore there’s a need

for pragmatism from the regulator (Project Innovate) and a need for challenge from the industry

which will take time.

- There was concern over where responsibility for advice would lie. This would have implications

for PI insurance.

- Adviser culture and adoption/acceptance of technology. This is an age old issue but remains a

challenge until the younger, techno-savvy generation takes over.

- Monetising robo/automated advice is difficult. Clients would be unwilling to pay, so how can

advisers justify the cost of the technology?



Whilst the technology might not exist yet, firms expect it to become available in the future and

recognise there are steps to prepare for more advanced technology

- Client segmentation. Advisers see the importance of detailed research and segmentation focused

around behaviours and attitudes rather than traditional metrics (age, income, etc.).

- There needs to be a culture and acceptance of technology within progressive adviser firms.

- Adviser firms need to have a well thought out technology strategy.

Other observations

Feeling that genuine disruptors have not yet entered the market in the UK, but general feeling that

over time this will happen and firms need to be ready/flexible to react/respond to the impacts (high

level of interest in emerging models, price points, service scope, etc. – possibly themes for follow-up

discussion).

Concerns about the high cost of entry, leading to discussions on affinity, partnership and outsource

models which are likely to offer better options for advisers to engage with/deliver solutions for their

clients.

From the Nutmeg and Lighthouse experience there are clearly risks and concerns around the

commercial viability of current solutions in the market, particularly investing time and development

effort/£ in tools that customers use for research but not to purchase. A high % of customer drop

out ruins the viability of any business case so this will be a key consideration for future investment

decisions.

Risk/Concern around the creation of systemic issues arising from flawed process design – lots of

interesting debate on this point, but clearly something that needs careful consideration as part of any

due diligence or solution design. The extent and quality of systems and controls to deliver good

customer outcomes will be another important consideration for future investment decisions.



12. Two become one – pre and post-merger best practice and lessons learnt

Moderator: John Chapman

Expert: Michael Riley, KPMG

What is happening in the industry with Acquisition? Increased uncertainty. Remaining in the status quo becoming harder and harder, profits are being

squeezed.

How to get it right

Many companies get it wrong (example Perspective) by not concentrating on the

background of the company they are buying.

Often post signing no one is there to focus on the company being purchased and how it will

continue.

Important to consider how the owner of the company is going to deal with the transition

post signing.

Important to have a Post-Acquisition Strategy in place before signing.

What are you trying to Achieve?

Culture – think of the culture of the business that you are buying – what works for

them/how to continue.

People – think of the team of people you are buying, how will they work together.

Going forward – before acquiring a company think about what changes are needed, what

should really be focused on?

Be Open

When acquiring a company include a deeper level of honesty.

Use a sales pitch that includes your expectations and the biggest challenges.

Understand the objective of the seller.

Advise the buyer what the plan is for the first six months post signing and how things will be

organised.

Be honest and upfront about exactly what your proposition is.

If there is any bad news to be delivered – get it on the table early.

What should be in place when acquiring a company?

Recommendation – ensure an External Programme Management team are in place to keep

you on track with deadlines during the acquisition process.

Discuss in detail at current client contracts.

Discuss/look in detail at employment contracts and how to transfer to equivalent contracts

in new.



13. Proof of suitability is now obligatory – how do you ensure that you have the

evidence?

Moderator: Roderic Rennison, Rennison Consulting

Expert: Eric Armstrong, Synaptic Software

Overview The current regulatory hot topic is suitability.

As a follow up to the recent Thematic Review the FCA has embarked on an initiative to scrutinise

the standard of proof in firms, and letters have been sent out to 700 firms requiring submission of

files relating to ‘advice events’.

It suggests the ‘three root causes’ for poor ‘consumer outcomes’ are:

1. ‘the poor quality of an advisory firm’s research and due diligence’

2. ‘incorrect risk profiling’

3. ‘costs’

The FCA’s current initiative shows the extent to which the FCA believes an overhaul on research

and due diligence within firms is overdue. Key findings following the initial assessment set out in their

Thematic Report 16/1 Paper entitled: “Assessing suitability: Research and due diligence of products

and services” published on 16th February 2016 included the observation that due diligence was

something that any firm ‘regardless of ‘size or type’ can carry out ‘good research and due diligence’.

Poor firms struggle with poor due diligence, and better and more professional firms thrive with good

practice in this area.

So in practical terms, what are firms expected to do, and how does this encouragement to act to

improve standards of due diligence translate into action?

There is nothing new, and the challenges can be summarised as:

1. A ‘culture of challenge’ typifies a good firm where each recommendation shows research

seeking to establish a better recommendation over any habitual or standardised offering,

including CIP.

2. Recommendations must be evidenced on an individual basis. (‘Take reasonable steps to

ensure a recommendation is suitable for the client’).

3. Selection of platforms are too often made on basis of service (benefit to adviser) and not to

client.

4. Is good advice compliant advice? Proof of suitability is now obligatory.

Synaptic Software who led this session focused on research points and the practical improvements

the FCA is looking for in firms. This session made the case for technological solutions as the only

way to ensure that advice is truly compliant.



Key themes

After 20 years’ of experience assisting firms achieve effective compliance regimes around suitability

in the key areas, Synaptic suggested that the following aspects were important:

1. Embrace software and technology

This ensures that transparency and the ability to evidence an audit trail. Access to up-to-date

and accurate product and fund data is important, and so are well developed applications.

These will allow efficient and repeatable processes to be undertaken.

2. Whole of market perspective

This golden standard still sits at the heart of effective advice. Whatever the product

requirements are, whether platform, investment, protection or other; a whole of market

view is essential, including a view on the financial strength of any provider or counter party.

Software is needed that can quickly create a shortlist and establish the basis of a

recommendation that is demonstrably linked to a client’s documented requirements.

3. Price

This is very difficult to evaluate effectively without specialist tools that can provide

illustrations that are accurate, and can be aligned with illustrations from providers. Given the

complexity of charging at platform, product and fund level, it is impossible for spreadsheets

to capture the data necessary to compare offerings in a way that will prove the value that is

being created within any client recommendation. Synaptic suggested that the ‘total solution

cost’ required by the regulator is best represented as a ‘reduction in yield figure’.

4. Risk

Volatility worked well historically as a proxy for risk, and risk assessments including ratings

were based on volatility bands. Practitioners would add in some reputable qualitative

research (opinion) and solutions would come to the fore that proved their worth. The

investment environment is more complex today, demanding greater analysis and objectivity

around risk. There exists a regulatory requirement for assessment of ‘capacity and tolerance

for losses’. These and other reasons have led us to concur with the growing acceptance that

Monte Carlo simulations are the best way of assessing likely investment outcomes, especially

when ‘pound cost ravaging’ and the effects of inflation need to be accounted for. Particularly

pertinent is the FCA’s repeated warning of over-reliance on any provider for research input.

Conclusions

Intermediaries need to pay close attention to the need to have auditable due diligence processes

that are focused on delivering good client outcomes and to devote the necessary time and resources

to achieve this.

The appropriate use of technology can help facilitate these processes.



14. The workplace as a new business opportunity

Moderator: Innes Miller, Scydonia Wealth Markets Consulting

Expert: Keith Webb, Capgemini Consulting

Key themes

There is a growing opportunity to engage with individuals through the workplace.

There are a number of drivers behind this such as the introduction of auto-enrolment and the

FAMR review which should make it more cost effective to serve individuals who currently may be

unable to afford access to financial advice.

Few advice firms have to date been able to successfully deliver workplace advice propositions,

although the ones that are structured to serve the corporate market are successful and make a

profit.

Hargreaves Lansdown was mentioned as an example, where they are working with BT to provide

financial advice and pensions planning through the workplace. More broadly, corporates

recognise the importance of being able to support employees with financial advice at all stages in

their careers, and in particular at-retirement.

Corporates are less willing to engage with the EBCs due to mistrust and cost. This change in

sentiment is creating new opportunities for advice firms. The challenge for advice firms in

developing and launching such propositions relates primarily to access to talent and creating the

infrastructure required to cost effectively serve individuals in the workplace who may not be in a

position to pay current market rates for access to financial advice.

The mass market, mass affluent and potentially some elements of the affluent market will find that

choice and access to advice in the retail market will reduce. In line with this, they may be more

willing to turn to the workplace for advice and support on personal finance matters. Given the

level of government interest in this, over time we may see greater innovation and choice

emerging through the workplace.

Auto-enrolment provides a greater opportunity to engage individuals in the workplace but it is

not without its challenges. There are structural issues. For example it may be cheaper for the

employer not to include auto-enrolment as part of an overall employee benefits package (but

rather to keep them distinct), employees may not see the value in opting in and the overall speed

of take up has been slow. For these reasons, we may see the government introducing more

measures to encourage greater take up.



In addition to engaging with the employer, advice firms could also consider how they work with

unions to drive awareness and engagement in the workplace. This could also include when people

are being made redundant and the access to financial advice they require at this point.

The introduction of vouchers that individuals can put towards accessing financial advice is also an

option. Although there is a question around how these could be delivered cost effectively given

the tax implications for the employer and employee.

The introduction of the Lifetime ISA and Help to Buy ISA provide the opportunity to offer a

different type of advice. The Lifetime ISA provides greater flexibility and places more

responsibility and choice with the individual. While it may be simpler and can be bought without

advice, it may require greater ongoing engagement and involvement from the employee than is

currently the case with pensions due to the flexibility afforded. This could create new

opportunities for advisers.

Other new developments in the workplace include the rise of wearables. This will help to

address issues such as absenteeism through illness and allow insurers to provide personalised

price points for protection products. Employees will also have the chance to participate in office

fitness competitions which can improve engagement and health and wellbeing.

However, for firms to take advantage of the workplace opportunity they will have to develop and

sell a specific workplace proposition. New skills and capabilities will be required at a time when

the workplace opportunity for advice is growing and is likely to be further encouraged by changes

to government policy. In addition to educating employees, advisers will also need to think about

how they can educate employers on the benefits of workplace advice to achieve full buy-in and

commitment.

Conclusions

The opportunity to engage with consumers will grow through the workplace, helped by the

growth of auto-enrolment, the introduction of new products such as the lifetime ISA and further

enhancements to government policy.

Advisers can capitalise further on opportunity, but will have to create specific services and

propositions to meet these emerging needs.

Employees in the workplace should not be considered as one group, but rather as a market that

needs to be segmented in line with the profile of employees, where segment-specific propositions

are on offer.

Technology will play an increasingly important role in workplace advice and benefits through the

use of for example, wearables and the growth and development of digital advice.

Technology should also be used to address price sensitivities in workplace advice through the

creation of low cost products and services that will be profitable in low margin high volume

environments.

Owen James Events Limited Brook House Mint Street Godalming Surrey GU7 1HE UK t +44 (0)1483 861334 E [email protected] w www.owenjamesgroup.com

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