Maximising the value of an IFA relationship

1. Maximising the value of an IFA relationship

2. What doesn’t kill you makes you stronger IFAs understand the headwinds facing solicitors because we’ve already been there FTSE All-Share Index April 2009EC announces plansto improve investor protection for packaged retail investment products (PRIPs) December 2013Minimum capital adequacy requirement for personal investment firms raised to £20,000 June 2006Launch of the Retail Distribution Review January 2013Investment firms must be fully compliant with RDR policy November 2007Implementation of the EU’s Market in Financial Instruments Directive (MiFID) December 2005 FSA proposes principle-based regulation December 2008All retail financial services firms required to demonstrate Treating Customers Fairly principles

3. Solicitors may only refer clients to independent financial advisers Independent financial advisers (‘IFAs’) must research the whole market before making any recommendations – and must give clients the option of paying for their services by a fee

4. 1986 Financial Services Act polarises of financial advice 2005 Financial Services Authority allows depolarisation to increase high-street choice 2012/13 Retail Distribution Review recategorises ‘retail investment advisers’ The evolution of financial advice *must offer a fee option to be called independent – otherwise called ‘whole of market’ Independent Tied Independent* Tied Multi-Tied Independent Restricted

5. Retail Distribution Review – your 10-second guide • Launched by the Financial Services Authority in 2006 • Aims to improve and modernise how investments are distributed to retail consumers in the UK • Three main goals: • Improve the clarity with which advisory firms describe their services to consumers • Address the potential for adviser remuneration to distort consumer outcomes • Increase the professional standards of investment advisers • Firms must be compliant from end of 2012

6. What will it require to be an IFA post-RDR? • From January 2013, an ‘Independent Financial Adviser’ must: • hold qualifications at a minimum level of QCF Level 4* • conduct a fair and comprehensive analysis of the relevant marketwhen making product recommendations • have sufficient knowledge of all types of ‘retail investment product’ that could give a suitable outcome for a client • select products in line with the ‘client’s best interests’ rule (COB 2.1.1) • NOT accept commission from product providers (even where rebated) • operate a product-neutral pricing structure *Qualifications and Credit Framework

7. What currently constitutes QCF Level 4?(NB This list is not exhaustive – for the full list see FSA Consultation Paper CP09/31)

8. Annual portfolio review Annual portfolio review Annual portfolio review Annual portfolio review Annual portfolio review Annual portfolio review Annual portfolio review Change jobs Receive inheritance RETIRE Move house Have family Buy first house Get married Mortgage/ repayment adviceConveyancing Spousaltax-planningWrite Wills Set up children’s investments & CTFs Review WillsSet up trusts Probate IHT & estate planningReview trusts Review WillsReview trusts Lump sum investment RefinanceConveyancing Long-term careEquity release Familycover Client asset value Regular savings pension School fees planning Arrange SIPP Pension maximisation/consolidation Pension de-risking Annuity purchase Income drawdown Annual ISA purchase Annual ISA purchase Annual ISA purchase Annual ISA purchase Annual ISA purchase Annual ISA purchase 20 30 40 50 60 70 80 Client age

9. Where do solicitor/IFA synergies lie? • Trust & estate planning Will writingTrust creation& administration* ProbateEstate disputes Portfolio construction Balancing interests Inheritance tax planning Ethical investing (e.g. for charities) Remember:The Trustee Act 2000 obliges trustees to review any investments made with trust money on a regular basis and to obtain proper investment advice. Solicitor IFA * NB: Where acting as trustees, solicitors should not refer trust work to businesses in which they have an interest

10. Where do solicitor/IFA synergies lie? 2. High-net worth clients Trusts & asset protection Estate management Pre-nuptial agreements Corporate asset structuring Wealth management Alternative investing School fees planning Tax-efficient planning Pension planning Insurance Solicitor IFA

11. Where do solicitor/IFA synergies lie? 3. Elder care planning Long-term care insurance Equity release product selection Impaired annuities Income solutions Power of Attorney Trusts Will-writing Equity release guidance Remember:Only financial advisers that hold the CF8 Long-term Care Insurance qualification can advise on long-term care products Solicitor IFA

12. Where do solicitor/IFA synergies lie? 4. Personal injury and divorce settlements Lifetime income planning Tax planning Family financial planning Pension planning Insurance Litigation Claims settlement Award assessment Trust creation & administration Solicitor IFA

13. Where do solicitor/IFA synergies lie? 5. Corporate & employer services Employer & group pensions Employee benefits & share schemes Workplace/director financial planning Insurance Employment law Corporate structure Client/supplier contracts Intellectual property Selling/insolvency Remember:From 2012, employers will be required to enrol all eligible employees into a qualifying workplace-based pension scheme Solicitor IFA

14. Client Fact Find Using knowledge of our clients to build and enhance our businesses • Enables firms to both meet regulatory compliance requirements and build better businesses • Requires client information to be shared across the business and not kept to one adviser/partner • Technology essential to ensure data is up-to-date and easy to interrogate 1. Client Fact Find Deep-dive knowledge of every client 2. Sales Management Information A real-time picture of a business 3. Client segmentation Build a business around genuine client needs

15. Client Fact Find 1. The Client Fact Find – a power-store of information IFAs are required to take reasonable steps to ensure that a recommendation is suitable for a client. Before making recommendations or managing investments, an advisory firm must obtain and document the necessary information regarding: • Client’s financial situation – including- source and extent of regular income- regular financial commitments- assets, including liquid assets, investments and property • Client’s investment objectives – including:- length of time for investment- preferences for risk-taking- risk profile- purpose of the investment • Client’s relevant knowledge and experience – including- familiarity with relevant services, transactions and investments- nature, volume and frequency of transactions- level of education and profession Taken from FSA Conduct of Business Sourcebook Section 9.2

16. The Client Fact Find - maximising the advice opportunity

17. Client Fact Find Client assetsAre these all properly balanced with a cohesive strategy? Time horizonsAre investment strategies appropriate to the time left available for investment? (ongoing review) Dependants and spousesAre all personal and investment allowances maximised across the whole family? Risk profileIs the current portfolio aligned with the client’s stated risk profile and preferences? Pension arrangementsAre all these optimised in terms of performance, charging structure and ease of management? Financial commitmentsAre assets and liabilities being offset as efficiently as possible? Turning a regulatory requirement into a commercial and client advantage

18. Client Fact Find The Client Fact Find (cont.) – using it to target solicitor issues WillsHave wills been written by the individual and their partner and are these up-to-date (e.g. post-divorce or birth) EstatesAre there any assets to be passed onto a dependant/ family member. How are these currently protected? TransactionsDoes the individual face any imminent property, business or commercial transactions? Elder careDoes the individual have any obligation to any older relatives – how are their future needs managed? With client approval, IFAs can share fact finds with solicitors, thereby providing them with regular and comprehensive client information

19. Management information (MI) – a further tool to build a picture of a business and its clients

20. Level of client activity including most recent transactions • Client activity by adviser/office/whole business • Clients with unused ISA and pension allowances • Investment asset allocation by client/adviser/whole business • Assets held per provider provider/investment group/product • Gross and net asset inflows/outflows • Monthly/quarterly/annual revenues by client/adviser/office • Client bank by age/AUA*/professional profile • Transfer activity from/to other advisers/providers • Length of client retention IFAs use software and investment-platform tools to maintain a real-time picture of Assess individual adviser performance Leverage client data across the whole business Track profitability by client/ adviser/office Be alerted to sudden outflows of business Identify potential risks (e.g. high client exposure to high risk assets) *Assets under advice

21. Client segmentation – improve profitability, anticipate future business direction and give clients what they need

22. Use the client fact find and business MI to segment & cross-segment clients by:Age Asset level/profitability Transaction frequency/objective/key concern Financial behaviour/portfolio complexity Professional profile This enables us to: Which in turn allows us to: • 1. Anticipate future needs across the whole client bank accurately and position business accordingly • 2. Increase retention of high-quality/high-value clients and increase referral of new ones • 3. Deploy resources efficiently to each area of financial planning and each client type • 4. Identify and build key areas of expertise to build clear proposition, culture and brand • 5. Ensure each client pays fairly for the service they require (i.e. no cross-subsidies) Anticipate client needs by life stage Identify current and futurehigh net worth clients Differentiate advice services/ marketing/communicationsby individual client needs

23. Segmentation in action • Our key client segments are: • 1. Young accumulators: • - Provide tax-efficient, growth focused strategies • Keep up to date with new investment opportunities and ideas • Focus on online servicing • Address life-stage financial planning • 2.High-net-worth retirees • High touch relationship with focus on regular face-to-face contact • Focus on tax and estate-planning • Income and risk-averse strategies • Strong potential for client referral – including from family members • 3. Transactional investors • Focus on efficient but low-cost servicing • Email with investment ideas and stock market commentary • Invite for portfolio review and assess consolidation potential For example, client profiling may tell us: 30% of our clients are professionals in their 30s-50s with fast-accumulating portfolios 40% of our clients are over 60 with portfolios of £400,000+ 10% of our clients are annual ISA buyers with few other assets with us

24. What can fact finds, MI and segmentation tell you about your business?

25. What is the age distribution of your clients – how is this changing over time? What is the ratio of personal to corporate clients (by numbers, by revenue share)?What are the growing and declining areas of activity? Which areas are seeing high levels of client referral? What is the distribution of your clients by frequency of contact (e.g. every quarter, every year, every five years?) Have you enough younger clients to sustain future growth? Are you overly reliant on a few large clients or well diversified? Where do you need to deploy resources? Which areas are proving your greatest strength and known area of competence? Does your servicing reflect the value of each client – how can you encourage more contact from less active clients ?

26. Other potential joint activities • Client mailings & newsletters, emails • Budget updates • End of tax year ISA and pension reminders • Stock market reviews & model portfolios • Best buy savings accounts • Personalised portfolio reports and valuations • Client & prospect seminars • Planning for a secure retirement • Managing a divorce • Funding old-age care • Passing on your estate • Asset protection (HNWIs) • Workplace marketing • Getting the most from your pension • Employee share schemes • Life-after-work planning • Wealth management for directors

27. Client reports: Example– Investment Portfolio Management

28. Client reports: Example – Risk Analysis

29. Client reports: Example- Montecarlo Simulation (Probability Modelling)

30. Benefits of a joint-venture (JV) structure for financial planning • If the JV is an Appointed Representative of the IFA firm, the IFA firm will carry front-line responsibility for compliance with FSA requirements • Solicitor participants can receive dividends provided the JV operates on a fee basis and accounts to clients for any commissions received • The JV can use the IFA firm’s existing staff, compliance and business management systems but must ring-fence the clients of the JV - and revenue from them - within the system • JV can be structured as a limited company or a limited liability partnership (tax considerations will normally dictate the appropriate structure) • Offers flexibility over equity structure and profit share

31. What’s in it for solicitors? • Reinforce long-term high-value high quality client relationships • Attract more clients within your preferred market segment(s) • Improve levels of client referral • Increase levels of business from existing clients • Maximise efficiency and profitability • Build a holistic advice proposition Transform threats to the legal sector into opportunities- The forthcoming changes are a welcome reminder of the need to change in a positive manner.