CompaniesNov 29 2013

IFA: Regulatory burden to blame for advice gap

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Founder of London IFA IDFM, Mr Curtis told FTAdviser that the ever-increasing burden of paperwork over recent years and exacerbated by the RDR has forced him to turn lower-value clients away and shun previously lucrative high-volume business such as setting up Isas.

He intimated that, if this is indicative of a trend across the industry more clients could wind up opting for direct options, which he said increases the risk that clients could stray out of their depth and purchase less-than-suitable products.

“There’s a lot of good things in what’s happened [with the RDR] and this moving over to review process of clients I think is great.

“But they’ve basically gone over the top in terms of paperwork which is the big failing of this whole process. So if someone said, ‘I’ve worked out that there’s a hundred different stages to an advice process working out an Isa’, I wouldn’t be surprised.

“They’re basically churning out more process more process, process, process. In any other business someone would say in any process you have to work out how much time this is going to take. You can’t just keep layering on more process layer after layer after layer.

“OK it now takes 24 hours to do an Isa - I’m exaggerating - but in reality unless there’s other business going on with a client that makes it overall profitable we don’t do Isas.

If someone said, ‘I’ve worked out that there’s a hundred different stages to an advice process working out an Isa’, I wouldn’t be surprised

Mr Curtis said he now approachs new prospective clients by assessing whether there is “common ground” on doing profitable business, which is inevitably leading him to move up the value chain.

“One of the first things you have to work out with a new client is are we going to reach some common ground here about doing a piece of business early days that’s going to be profitable, because otherwise this meeting isn’t going to go very far.

“Which is fine, because there’s plenty of people with money who need advice which is who we are looking for.”

Mr Curtis thinks the FCA intends for non-advised services to close any advice gap created by the switch to fees and the increased compliance demands.

“I think in a way the FCA kind of knows that Joe Public is going to get picked off and served by direct providers. There’s a massive chasm in the marketplace for low level business that isn’t being met properly.

“You’ve either got direct or you’ve got some advisers who have developed process - they wouldn’t be Sesame members because Sesame wouldn’t allow it - but they have some... software to manage that.”

Growth spurt

Mr Curtis runs a modest advice firm from offices a short walk from London Bridge, but he has plans to harness the opportunities presented by auto-enrolment and the RDR to grow his business.

In particular, he said he is planning to do this by farming his bank of previously transactional clients to provide the foundations of a profitable ongoing client bank for his new recruits.

The first step in his expansion plans was to take on a second adviser who was looking for a job after leaving HSBC when the banking group cut its advice offering.

As part of the new recruit’s initiation, Mr Curtis has tasked him with combing the company’s base of 1,300-odd transactional and background clients for those who may be suitable to upgrade to become full-review clients.

“I believe in doing things properly with good deep roots so [the new adviser] is going to be embedded very integrally in the firm.

“My objective is to get him a hundred good clients where he’s picking up fees... and build him so I can then bring [other recruits] in and say, ‘Ayoob came in a year ago and now he’s got assets of £20m’.”

Taken on about a month ago, the newest addition to the team forms only the first step in what Mr Curtis hopes will be a prolonged period of expansion, with two more advisers joining in the next two years.

He expects to do this on the back of expansion into areas such as auto-enrolment, which he thinks could yield earnings of £100,000 next year alone. This is despite many advisers sounding caution over this once sought-after business area in the wake of the government’s ban on consultancy charging.

“We can probably recruit another four, five people here including admin. We’re already thinking about another paraplanner so I reckon about two people a year. I want to maximise this office space.

“We’ve on-boarded all the top clients we’ve had; they’re all paying for a review service.”

Autum cleaning

According to Mr Curtis, the switch to clean share classes is another example of the increasing pressure advisers are under just to conduct day-to-day business.

“We run our portfolios and every time we do a fund switch and there’s different classes of shares for that same fund I have to work out whether the bundled or unbundled is actually cheaper and better for the client.

“It’s another headache the industry has dreamt up as if we didn’t have enough things to consider.

“It is difficult to work out even if you phone providers and ask them about their different share classes the information is confusing. You basically have to back it up with a conversation and maybe checking it out on FE Analytics.”