Your IndustryJun 21 2013

Adviser: I can close advice gap with £40 session

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The advice gap is something many people seem to have taken for granted since the Retail Distribution Review came into effect.

However, Jaskarn Pawar, sole practitioner and chartered financial planner at Northampton-based Investor Profile, says he is able to sustain a mass-market client base by largely cutting out face-to-face meetings and relying instead on telephone service.

Mr Pawar believes that diversity in business models and natural market forces will work to close any advice gap the RDR may have created.

He says his own ‘surgery’ service, which allows people to pay online for a £40 telephone session, means anyone who wants a one-off chat with an adviser to help get their financial affairs in order can have one.

While the service only offers a half hour call, the ultimate cost is in line with the hourly rate that research in the run up to the RDR suggested most people would be willing to pay for advice.

One survey published in January 2012 found that Brits expected to pay £38.90 an hour for advice. A separate survey published November 2012 by YouGov reported similar results, with customers willing to pay on average £42 per hour.

A new model

“There aren’t too many different business models when it comes to IFA firms so I thought I would do it a bit differently, which is my nature anyway.

“They [clients] want to know how much it is going to cost in terms of monetary amounts. I looked at the rates other professionals charge on an hourly basis and what people pay for that and why, and what sort of service they receive.”

Mr Pawar’s ‘surgery’ concept for providing advice to anyone regardless of asset levels is a half-hour telephone interview for a set fee in which any topic can be discussed.

Some of these clients naturally decide they need more service and can then opt to become a fully-fledged client, which includes periodic reports. In this way, the service also becomes a driver of new full-advice business.

“We have the financial surgery for £40. It’s a surgery format so people can book online for an appointment and pay online, and they receive a telephone call for the time they have booked.

“It’s half an hour and they can discuss any matters they like. Some of them want a little advice or have done some research, or want to see what level of service they would get as a client.

“It is important to identify who your client base is going to be. There is a wide range of hourly rates for different professions. The variety is going to be huge.

“For me I was looking for a mass market approach. What do what I call ‘normal people’ want to pay for that?

“The real premise of the company is that the charges are lower and the service is designed accordingly. What cost a lot of money is the meeting, so I decided to cut that out.”

Mr Pawan’s hourly rate is around £80 to £100 pounds per hour. His model has given rise to a regular ongoing advice client bank of about 60.

“That’s been the fun thing about it. I intended it for people to be able to access really good quality advice and I have ended up with a traditional IFA client bank, with people who are just starting out to high net worth retired couples.

Platforms

Although some speculate advisers will move towards using more platforms post-RDR, Mr Pawar says he has gone in the opposite direction.

“I started out using a number of different platforms because of the wide variety of clients I have. I probably started out using five or six platforms. It allowed me to get a real taste for the market and be a real financial planner who takes each client as they come.

“Moving forward I would probably use the same number, but put more clients on fewer. There will probably be more clients that fit towards platforms like Nucleus, Alliance Trust and Transact.

“I find them a bit more flexible in terms of the products and funds. Traditionally it was impossible to get Vanguard on Skandia or Cofunds pre-RDR.”

Another way of keeping costs down is by using passive funds. However, Mr Pawar warns that some advisers might be tempted to shift over to passives without necessarily passing any cost savings on to customers.

“You get advisers sneaking their fee to 75 basis points and potentially offering passive funds. You can introduce some passive funds into the portfolio, but it’s sneaky if it is being presented as the solution. That’s a big change in the portfolio. If it is presented as an option then that is fine.”

Client movements

Neither Mr Pawar nor the advisers he associates with - most of whom are members of the Institute of Financial Planning - had to dramatically overhaul their businesses to prepare for the big change. However, he does believe there has been a general movement by advisers towards conducting business in a more professional way.

That said, Mr Pawar has not come across too many people who have been abandoned by their advisers or banks.

“I haven’t really come across people that have said I used to have a financial adviser or a bank. What I have come across is people who haven’t used a financial adviser before. I’m coming across more and more of those but that might be because it’s a service.

“I’m sure there is an advice gap, but for me more than anything it is not so much finding an adviser as finding someone who will talk financial planning with them.

“Too many mass-market propositions tend to be about product delivery and that is not necessarily right.

“A lot of advisers are moving to the high net worth end. For the amount of advisers and the amount of people in the country there is enough to go round. The more business models you get the more clients will be introduced to the industry.

“With different types of delivery channels, charging typ

With different types of delivery channels, charging types and ages of advisers, RDR will solve itself.