Go beyond segmentation: Forty Two’s RDR plans
An important distinction exists between financial planning and financial advice that will determine success post-RDR.
When it comes to rules coming into force under the Retail Distribution Review, Alan Dick, partner at Forty Two Wealth Management and newly-elected vice-president of the Institute of Financial Planning, believes the writing has been on the wall for more than a decade.
Forty Two Wealth Management is a small financial planning firm based in Glasgow, comprised of Mr Dick himself and two support staff. Most of Forty Two’s clients are 55-plus, and are nearing or are at retirement.
“They have built up sizeable assets throughout their lifetime. They will have investment assets generally in excess of £500,000 pounds or regular income of £150-200,000 pounds.”
Mr Dick says his has been RDR ready for a long time, beginning with the publication and rejection of proposals for the reform of polarisation rules under consultation paper 121 in January 2002.
It was then that Mr Dick foresaw a shift to fee-based advice and he says he changed the way he did business in accordance. Between 2002 and 2005 Mr Dick says he experimented with various fee-based approaches before he settled on one that worked for his clients.
What you are really doing is segmenting clients you take on - you take clients that suit the model you run in your business
“It took use quite a long time to get the fee structure sorted. The key thing was I was introduced to the IFP and found out about the certified FP qualification. It was a proven business model of financial planning.
“The old process was how do I manage to justify the sale of an investment. That is why financial planning and financial adviser are two different things.
“Forty Two’s service starts with the understanding and clarification of the client’s long-term life goals. The things that really matter to them, their values in life and how their financial actions match with those goals.
“If we know what a client is really trying to achieve in the long run we can put a strategy in place to try and achieve it and be aware of what might prevent them from achieving it.”
Mr Dick believes that in a post-Retail Distribution Review world moving away from this transactional advice approach will be critical for advisers to survive, as there will be a growth in online services that provide this function more cheaply and conveniently.
Instead, Mr Dick believes firms will add value by analysing clients’ long-term goals and helping them work towards them with regular check-ups. In other words: whereas many advisers currently rely on new business and selling products as sources of income, reliance on fees will shift the focus towards recurring income.
“Selecting products is like a supermarket. It’s really a commodity industry. That’s why a lot of research is coming out showing a lack of willingness to pay fees because they can find products online.