“Examples of need segmentation could include capital accumulation, capital protection, inflation protection or income provision. Every solution utilised by the adviser firm needs to be reviewed regularly to ensure its outcome continues to meet the need of the intended client, and this process needs to be clearly documented,” he adds.
Martin Bamford, chartered financial planner at Informed Choice, anticipates some companies will struggle with the rules more than others. He says: “Restricted advisers and those who form part of a vertically integrated business will need to work a lot harder to satisfy the rules. If you’re essentially all about selling products, then you need to take real care to ensure those products, and your proposition, are designed with your clients in mind.
“Many of the restricted propositions out there seem to place the shareholders and advisers before the clients, as they are designed to accumulate client assets and charge reasonably high fees for ongoing management.”
Mark Spiers, a consultant at Bovill, concurs.
“Wealth managers who offer discretionary and advisory services alongside each other with wealth planning are going to have the toughest time with this. They have to think about how each of the services meets the needs of parts of the client base and how they might go about policing that,” he says.
In spite of Mr Percival’s concerns, a report by adviser platform Nucleus found that categorising clients by asset value is still proving to be the most popular method of segmentation. As Table 1 shows, 61 per cent are using this means. Frequency of service and financial requirements are also popular at 38 per cent and 36 per cent, respectively, with age/life stage selected by 27 per cent of those surveyed. Retirement (19 per cent) and attitude to risk (11 per cent) make up the remainder.
Table 1: Variables companies assess when segmenting clients
Value of investments | 61 |
Frequency/depth of service | 38 |
Financial requirements | 36 |
Age/life stage | 27 |
Retirement | 19 |
Risk tolerance/attitude to risk | 11 |
Source: Nucleus. Copyright: Money Management
Ill-equipped?
Concerns about intermediaries’ ability to meet the rules have surfaced from other quarters, too.
Regulation is at the heart of much of the profession’s evolution, and some think Prod could accelerate further shifts. The growing cost of new rules of all kinds is prompting intermediaries to analyse their advice models, from how much and how they charge to their back-office systems, and to consider whether their organisation has sufficient scale.
As a report by consultancy business Cerulli Associates, published in April, suggests this has meant the commercial viability of traditional advice models (which have direct involvement in fund selection) has come under increasing pressure, prompting a renewed switch to investment outsourcing arrangements.
