One of the key changes with the retail distribution review in the UK is where you are receiving recurring adviser fees from a client, or their investment products, you have to provide an ongoing service. Naturally, the disclosure of such fees has to be transparent, with examples given to clients in cash terms as well as percentage terms, both generically and client specifically.
For many advisers the challenge has not been fee disclosure but the creation of a profitable ongoing service proposition, particularly with regards to existing clients. While it may be easy to create the ‘ideal proposition for the ideal client’, in reality this has three consequences.
First, segmenting the existing client bank potentially highlights a lack of profitable clients. Second, the proposition needs to be robust enough to attract new clients and, third, you may have to acquire new skills and invest significantly to deliver the proposition to the satisfaction of the client.
Adding value
In the UK many advisers have identified the high net-worth client as their ideal profitable client. Arguably, there is already plenty of competition in this target market, which has traditionally been serviced by the private banks, stockbrokers, accountants and lawyers or, more specifically, their in-house IFAs.
We believe the barriers to entry are surmountable but the client service has to be meaningful, providing an annual valuation alone is not sufficient to justify an annual fee.
The service has to offer ‘added value’. In particular, we believe clients require their adviser to provide ongoing independent financial advice, regular review meetings and an investment management proposition underpinned by strong research capabilities. A willingness to work with the clients’ other professional advisers to deliver integrated solutions also strengthens the proposition.
The OakTree Wealth Management client proposition integrates financial planning and discretionary portfolio management and, more importantly, delivers a proactive ongoing service to clients. The aim is to build long-lasting client relationships that are mutually beneficial.
Discretionary portfolio management is at the core of our proposition. Our chief investment officer Ian Brady has more than 25 years’ experience as a fund manager. At Invesco Perpetual he ran the World Income and World Growth funds, both of which were AA-rated by S&P. The OakTree Investment Committee also includes highly experienced investment advisers/fund managers formerly with Morgan Stanley and Kames Capital.
Risk and reward
The twin aims of the investment team are to achieve long-term capital appreciation while mitigating the potential for permanent loss of clients’ capital. We spend as much time on risk as we do on reward at our bi-monthly investment committee meetings.
One of the greatest benefits of having an in-house investment team is that it allows our financial advisers to optimise their time that is spent building and maintaining strong client relationships.
We also believe our proposition is compelling for the UK expatriate, hence the decision to offer an international perspective to our business particularly aimed at the UK expatriate who plans to relocate to the UK in the future.
As the UK industry moves to a ‘service’ proposition, clients will benefit as their advisers are developing longer-term relationships with
them. However, in the short term the cost of the transition has been high as advisers have had to invest in
new propositions and have incurred additional expenses.
Increasing profitability
There are huge ongoing benefits of being a fee-based business with regards to building a profitable business. Historically, a transactional business model relied on clients buying products and the need for the company to acquire an ever-increasing number of ‘clients’. Very few businesses in the UK were able to operate this model profitably.
Making the transition has been a costly exercise for many companies, and those who have managed it effectively and have a strong client-centric proposition will flourish.
Those who have struggled are likely to leave the industry, seek a merger or an acquisition from one of the many ‘consolidator’ companies in the UK.
We know that many overseas jurisdictions are currently considering their own version of the RDR. Our experience of UK RDR proves you can build a profitable new model business from scratch.
Likewise, those organisations that are willing to re-engineer by creating a service model with recurring income will be able to significantly increase the profitability and value of their business.
