Eight ways advisers are cutting low-value client costs

Some have suggested that to service low-value clients advisers must take an up-front hit. Advocates argue this creates long-term value - many of today’s low-value are of course tomorrow’s high net worths - while others counter with the mantra, ‘I am running a business not a charity’.

To state that the debate is due to the Retail Distribution Review is perhaps to overstate the influence of the rule changes; many advisers have told me lower-value clients have never been able to ‘afford’ advice.

The pressure on advisers in the new world is, however, bringing the issue into sharp focus. Tapping into the widest possible market is the solution to the question of whether there is a large enough customer base for advice, but it boils down to how to do this economically for all concerned.

One solution, of course, is to offer a non-advised service in parallel with the advised solution. Many are doing just this, but obviously some advisers would rather non dilute the adviser relationship to this extent.

A survey by Cofunds of 404 advisers revealed that 58 per cent of financial advisers actively use “online tools” to help service clients with modest portfolios while retaining the interactive relationship afforded by ‘advice’.

The platform does offer a breakdown of this nebulous term, with these advisers highlighting seven key methods to reduce the cost to clients and the overhead for their business.

1) Client-facing online fact find forms. Some 96 per cent of the advisers using online tools said they use a website that allows clients to do the bulk of their own fact find.

2) Email updates. Sounds simple, but 86 per cent said they simply replace face-to-face or telephone contact with email communiques.

3) Client-facing review website. Some 73 per cent said they client-facing website to allow clients to review their “financial plan” on an ongoing basis.

4) Text messages. Six out of ten of the advisers said they use text messages to update low-value clients.

5) Twitter. Not sure how exactly this works, but just more than half of the group said they use Twitter to keep clients informed.

6) Blogs. In a similar vein just less than half said they use a formal online blog to interact with clients, most likely on general market movements you would imagine.

7) Facebook. continuing the theme, 47 per cent use a corporate Facebook page to keep in touch with clients.

Interestingly, this is just one of two recent surveys on this subject by Cofunds, which is also plugging heavily the benefits of offering a more formal ‘self-directed’ option for clients as an eighth potential tool.

According to the second poll a third of financial advisers now offer or will consider offering self-directed services to ostensibly advised clients that allows them to execute certain trades themselves without formal recommendations.

However, 53 per cent of advisers would not consider this option according to the research, believing it takes the client one step too far away from the adviser.

According to the latest platforms survey compiled by FTAdviser sister title Money Management, platforms, too, are split on the merits of this last option.

A total of eight providers allow execution access for advised clients: Ascentric, Cofunds, Fidelity FundsNetwork, James Hay Wrap, Raymond James, Skandia, Transact and Vantage. On the other hand, 11 other platforms will just facilitate read-only access for advised clients.

Andy Coleman, director of distribution at Cofunds, said: “Constructing an offer to serve the self-directed segment of an existing customer base provides an opportunity for financial advisers to build a long-term sustainable business model.”

It is commendable - and perhaps essential - that advisers are now thinking outside of the box. The problem with anything even remotely execution-only is that lower value clients do not know what they need, and will likely need some hand holding.

The good thing about self-direct, Cofunds and adviser supporters argue, is that clients still have comfort that they are being advised and this could, as the platform states, help cultivate HNW clients of the future.

Mr Coleman added: “The type of self-directed model which complements the existing HNW model, one that acts as an extension of the adviser’s own business, and one that uses the adviser’s own branding can help future-proof the business.

“That’s because a self-directed service modelled along those lines enables advisers to maintain a relationship and a value exchange with clients with more modest portfolios.”

So, what do you think. Are any of the above eight options viable for your business? If you don’t use them, do you plan to in the future?