We all know about the RDR and what it means for you and your client. But what happens to those who want advice but cannot afford to pay for it? Or those who simply do not have the assets to be viable as clients.
According to Unbiased.co.uk, the average cost for fee-based advice in the UK is roughly £150 per hour, depending where you are in the country and the specialism or qualifications you hold.
Cost is one key factor for clients in choosing an adviser, but the fees shake-up has left many so-called RDR orphans.
So what happens to those clients who need advice but cannot justify paying for it?
Here, we look at a few tools to help advisers and their clients adapt to the new landscape, without resorting to the Money Advice Service.
Nutmeg
Launched in October last year, Nutmeg is an online discretionary management service that constructs and manages portfolios for savers. The minimum investment is £1,000 per fund and investors can set up as many funds as they like, each with its own timeframe and risk appetite.
Nutmeg is easy to use and has a quick registration process. Done in four initial steps, investors are taken to a page to find out the estimated performance projection for their fund. First, they enter the amount to target, then set their desired investment timeframe - from three to 50 years.
Now investors can choose an initial lump sum – from £1,000 up to £100,000 – and how much they wish to contribute monthly – from £0 to £5,000 in £50 increments. The final step is to choose a level of risk – from 1 (“avoiding loss is the priority”) to 10 (“will risk large losses for higher gains”).
The investor is then taken onto the next stage: looking at the fund’s allocation.
Nutmeg primarily invests in exchange traded funds, in order to keep fees low (as opposed to actively managed funds). The annual management fee is 1 per cent a year in order to build and manage a portfolio online. Fees can fall to 0.3 per cent a year through the loyalty scheme where investors earn points, or ‘nutmegs’. These are earned by investing, staying with the firm and inviting a friend. According to the firm, “the more nutmegs you have, the lower your fee”.
The company was founded by Nick Hungerford, formerly a director of Brewin Dolphin and wealth manager at Barclays.
Overall, Nutmeg offers a service designed to be used without the need of an adviser. However, it may be worth a look for clients who can’t justify adviser fees but would like an idea of what their investment could do – especially if they are not ready to invest just yet.
eValue
A service that can be used both with clients and independently, eValue has two websites that provide financial planning tools to enable both the adviser and the consumer to understand the uncertainty of their investments or financial goals. The firm already provides financial planning tools and solutions to over 80 per cent of UK financial service institutions and more than half of the adviser market has access to its software solutions.
eValue has been around a long time; its heritage originates from Towers Watson, a leading global risk management and HR consulting group. In 1993 it was the first to launch tools with a global economic model, which generated statistical forecasts of likely future investment returns.
The company has two websites – Advisa Centa and Moneybee. Advisa Centa is designed to help advisers “illustrate their value” and is specifically aimed at advisers with the following eight tools offered:
• Risk profiler: Gives a repeatable and compliant process for assessing clients’ attitude to investment risk.
• Investment planner: Based on clients’ attitude to risk, it demonstrates the trade-off between the potential risk and reward.
• Retirement planner: Illustrates how key factors such as current balance, contribution amount, investment strategy and retirement age affect clients’ retirement income and demonstrates the impact of changes in strategy.
• Transfer analyser: Helps clients decide whether or not they should transfer from a defined-benefit to a defined-contribution pension.
• Portfolio analyser: Delivers added value to clients by illustrating the prospects for investments in terms of taxation and potential future values.
• Life planner: Creates a holistic view of clients’ expenditure and income to establish whether their goals are on course to be met.
• Retirement optimiser: Adds value to clients’ portfolios by identifying ways in which incomes can be maximised.
• Funds risk assessor: Can be used by advisers or fund managers to risk-rate any fund or portfolio of funds on an ongoing basis.
Moneybee is a watered-down version of Advisa Centa for consumers. It offers similar aspects, such as the risk profiler, as well as an ISA forecaster, which aims to project a range of potential future outcomes for ISA investments by analysing how investment markets have moved in the past.
It is similar to Nutmeg in what you need to input - although Moneybee lets you do this without registering. The site then shows you a graph of what will happen to your investment and roughly what you should expect to achieve in either a stocks-and-shares or cash ISA. What is different to Nutmeg is that Moneybee clearly suggests that, if a user is unsure of an investment, he should seek advice from an adviser.
Both eValue’s products are a great way to evaluate risk. Advisa Centa can in fact help secure clients, as it will give you that little bit extra that they cannot get alone. The product is more in-depth than its consumer counterpart and does not take away the advice aspect that some other direct-to-consumer sites do.
BlackRock Transitioning Tool
Nutmeg and eValue both provide client-facing solutions for those who no longer receive advice. But how do you decide which clients this is appropriate for? Launched last August, BlackRock brought out its transitioning tool as a way to help advisers preparing to move to a fee-based business model ahead of the RDR. It is essentially a way to calculate whether a client is viable and profitable. The tool calculates how many working hours clients take up – as well as paraplanner and admin time and costs – and then shows that in monetary terms as an annual cost per client.
The online tool was designed to help advisers find solutions to some of the key challenges ahead of the move towards client charging, but is still relevant and being used today. The BlackRock tool has six steps helping advisers determine the cost of servicing clients; establish a client-servicing proposition; understand the potential benefits of client segmentation; model potential revenues; forecast how revenues might evolve over the next three years; and to consider the factors that influence how a practice is valued.
Jeremy Roberts, head of UK retail sales for BlackRock, says the tool should help advisers look at their business and really analyse their proposition. It goes into detail such as inputting the number of staff you have, number of days you have attributed to client conversations, remuneration and justifying your rates. He adds this is necessary as advisers “should be giving more advice and clients should be seeking more advice”.
While you might think this tool is no longer necessary, you can still use it - in fact, over 1,000 advisers have registered and still use it six months after the RDR. “It isn’t a one-off tool, advisers can still use it to review the initial changes they have made,” Mr Roberts says.
As well as the tool, BlackRock also has an adviser toolkit, which includes a video on the key considerations when transitioning your business (you can get CPD points for this one too). It includes suggested conversation-starters when speaking to investors to encourage the client to engage with their adviser.
Mr Roberts concludes: “In time we may look at adapting the tool further, but for now, from the 1,000 registrants, it’s been useful. Now that RDR is here and here to stay, advisers need to constantly stick to what is useful to the investor.”
