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Rdr 2012 jb presentation jan 12 final


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  • Ever since the Retail Distribution Review was announced in 2006, JPMorgan Asset Management has made it a policy to deliver insight and practical guidance to support intermediaries through this time of massive commercial and regulatory change. We hope all this has been useful – but believe me it isn’t pure altruism. We are all too aware that helping you survive and thrive is critical to our business. Intermediaries account for around XX% of our gross sales in the UK – your long-term success is as critical to us as it is to you!
  • But it’s crunch time now. With less than a year before the RDR deadlines, firms need to be in the home straight and clear on their strategy in all the areas above. And today I want to briefly outline some research we have been conducting in association with Citywire focusing on the last point – determining your client proposition. Or more logically perhaps – what is it that clients or potential clients want from you and are willing to pay to receive? This is going to be the subject of our next white paper to be released in the spring. So this is just a quick taster of what we’ve been finding out.
  • So to explain, over November 2011 with the assistance of Citywire, we surveyed existing advice users. These were people who had told Citywire they accessed financial products via intermediaries. We asked them about their relationship with their adviser, what they use them for, what they value most about their advisory relationship and – really what IS it that keeps that relationship alive. In short we want to start to learn what is it that makes for a great client relationship and therefore what is it that IFAs need to start marketing to new and potential customers? Starting with a field of 324 potential respondents, we received responses from 86 advice users – a great response rate.
  • How this slide may not seem to hold many surprises – we know that advice-users tend to be older and close to retirement. But still – take a look at that leap between age 25 and the mid-thirties crowd -there’s a six-fold increase in advice usage and that doubles again over the next generation. We think the early 30s is a powerful market to be tapping into – even though 30-somethings now are going to be less cash-rich than their predecessors given university costs, house prices and reduced pension provision. The graph on the right also shows some really good news. Just look at the longevity of these client relationships!! From the sample we looked at the average client relationship has been 10 years – Now really doesn’t tally with the stories of low client persistence – or at least low product persistence we have been hearing about for so long. The message is clear – when a client finds an adviser they like and trust, they STICK with them.
  • Okay – so our first questions wanted to find out what consumers really understand by independence – or what lack of restriction in an adviser REALLY matters to them. The RDR has stipulated that – to be independent – intermediaries must be able to advise on every retail investment product on the market. But our research shows that consumers are happy with a far more pragmatic approach. They DON’T expect advisers to know about every single product there is – BUT – and it’s a big BUT – of the products they can advise on, consumers do expect that advice to embrace a broad range of product providers. THAT is what independence means to the consumer – unrestricted in terms of product provider, not necessarily unrestricted in product type.
  • This pragmatic mind-set comes out in other ways in our research. For example, we asked respondents what sort of portfolio management service they would prefer, bearing in mind that different types of portfolio management will carry different levels of cost. Overwhelmingly, consumers were happy to go with a fund-based service rather than an all-singing, all-dancing discretionary approach. Yes, the majority want a solution with an element of personal tailoring but they accept it’s not necessary to include every type of security there is in order to deliver good performance. But this also shows the scope for segmenting portfolio services – we see here that 12 respondents – or 14% of our survey group – want the most expensive portfolio management service available – while at the other end of the spectrum just under 20% are willing to plump for the least expensive model portfolio approach. We therefore see that there are meaningful proportions of clients seeking out three quite different portfolio management approaches. The question you need to be asking yourself is – can I service all three of these segments – or just one or two of them?
  • We are hearing a lot these days about the rise of execution-only and how advisers need have EO/self-service/D2C – call it what you will - offering in order to survive. We think this is true to some extent. But our research shows that while consumers 60 percent still want an adviser to take care of the whole process of selection and product arrangement for them. The D2C mortgage and insurance markets may be buoyant but we are far from becoming a self-service country where financial-planning – or rather investment planning – is concerned. But we can see that there are interesting servicing opportunities here that might combine advice-only and execution-only propositions. Also look at the two stats in the top right corner– half of consumers would like a service that they can use on a one-off basis – in much the same way that many might use a solicitor for one-off events. Is there any scope in your client proposition to offer ad-hoc advice? Or are you really after that 46% who want and will pay for an ongoing service? We wonder whether the two approaches can work together – offer potential clients a task-specific service initially but then cross-sell the ongoing service. What’s been clear in EVERY piece of RDR research we have done to date is that clients simply don’t want open-ended costs such as time-based fees. You know this – so it’s about giving clients a degree of control and letting them feel that they are deciding what any service will ultimately cost them. Paradoxically, the clearer their control over what something will cost, the more relaxed clients become about spending more.
  • The critical question is what can you offer that consumers are willing to pay for. Well in a new epoch of financial scandal, consumers are crying out for someone they can trust and who they feel they can contact at any time they need to. And in a low-return environment, they NEED to know your recommendations can result in a better return on their assets. Quite simply – and we spelt this out in our last white paper on setting fee models – if consumers are explicitly going to pay for a service they want to know its value in terms of the asset return you will achieve for them – whether that’s in terms of investment performance, greater tax efficiency or achieivng lower product charges. It’s more vital than ever that when marketing to potential clients – and reinforcing relationships with existing ones, that you are able to demonstrate what returns and other monetary benefits you have helped achieve for your clients through your advice. We’ve stressed this in previous papers and the value of demonstrating the value in pounds and pence of your service is only going to grow – and it’s something that advisers can no longer be coy or vague about. Also continuing the theme of execution-only, look how online access to financial planning performs. If you don’t yet have a strategy for delivering online access for clients – or selected client segments, it’s advisable to be talking to a platform or wrap provider now. A few years ago, online functionality may have been a ‘nice to have’ – increasingly we believe it may be a deal-breaker for clients.
  • Now – we’ve tried to pose this question in many ways in the past and it’s always extremely difficult to assess what consumers are willing to pay for advice. In fact when we asked existing users of advice what they would be willing to pay as a percentage fee – more than 16% didn’t know what they would be willing to pay now and over 17% didn’t know what they would be willing to pay in the future. Why? Because it’s simply not yet a commodity that consumers know how to value even when they are actually using it!!! Ask consumers what they should pay for a pint of beer – they can tell you. Ask them for the monthly cost of a smart phone – or indeed online car insurance – the high visibility of these goods mean consumers are now working within a known price framework. Not so financial advice – or at least not yet. And if there is one beneficial outcome of the greater transparency that the RDR will put on distribution costs, we hope it’s that consumers start to put a price and a value on financial advice – rather than seeing it as an add-on that’s tossed in for free with their pension or insurance bond. As to what advice-users are willing to pay now and in the future, you’ve guessed it doesn’t look much – 0.5% is most popular. But interestingly, consumers like round numbers with twice as many willing to pay 1% as 0.75%. The good news, however is it looks like you are mostly getting it right, with half of clients happy with what they are paying and most of the rest feeling their adviser’s service is only marginally more expensive than it should be.
  • But it may pay to discuss with clients ways in which the cost of advice can be managed. Our respondents proved pretty receptive to a range of ideas to keep down the cost of advice. Technology in particular is set to be a key way in which overheads can be reduced without affecting the quality of advice received. Almost half of clients are delighted not to see you much if it can helps to keep costs down – and again, efficient portfolio solutions get the thumbs up from around 40% of existing advice users. So the message is clear: segmentation can work for you. Different propositions with different servicing levels and pricing that reflects those servicing levels WILL appeal to different clients. Consumers ARE receptive to tailoring what they get to what they can afford. So be creative and – above all – be commercial.
  • So this is just a taster of some research in progress which we hope to publish as our next – and probably last paper before the RDR deadline. Our research is still in progress so if there are areas you’d like us to address in terms of building client propositions, please let us know. Thank you.
  • Transcript

    • 1. Building the client proposition – some work in progress January 2012 For professional advisers only – not for onward distribution
    • 2. Navigating the RDR with J.P. Morgan Asset Management Surviving the Storm (August 2007) Opportunities for investment advisory firms in a changing market Putting TCF at the heart of the advisory process: (September 2008) 10 considerations for advisory firms in Treating Customers Fairly Changing Fortunes (May 2008) Setting guidelines for financial wellbeing in the UK Reaping Rewards: (August 2009) Assessing, optimising and releasing the value of a financial advisory business Putting a price on financial advice: (May 2011) Negotiating the transition from a commission-based to a fee-based proposition The Retail Distribution Review: (October 2010) The challenge and the opportunity for wealth managers Professional Connections: (May 2010) Creating opportunities between IFAs and other advisory professionals 2007 2008 2009 2010 2011 2012
    • 3. The RDR ‘to do’ list  Get all advisory staff to QCF Level 4  Determine our charging structure  Decide if we will be independent or restricted  Determine our client proposition
    • 4. About our ‘advice users’
      • 45 per cent are retired
      • Average household income is £25,001 - £50,000
      • 72% claim to be using an IFA and 12% a stockbroker
      Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 5.
      • Q: How old were you when you started using your adviser?
      • Q: How long have you been using your current adviser?
      Client profile: middle aged – but can be very faithful Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 6. Scope of advice: consumers expect a pragmatic approach
      • A financial adviser should be able to provide advise on…
      Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 7. Investment: cost weighed against customisation
      • Q: Which portfolio management service do you favour - bearing in mind the differing level of cost involved?
      Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 8. Advisory vs DIY: Rich cross-over opportunities
      • Q: What would be your preferred approach for the following financial-planning activities?
      49% want a task-based service where they only use and pay for an adviser if and when they use them 46% want an ongoing service where they pay for continuous advice and support Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 9. Your biggest value-add: trusted advice…and superior returns
      • Q: Having used an adviser, what aspects of their service do you find most valuable/ useful?
      Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 10. Ongoing service: the acceptable cost
      • Q: As a percentage of your investments what are you willing to pay your adviser?
      47% of clients think their adviser’s charges are ‘just right’ 41% believe they are ‘a bit too expensive’ ..but only 4% believe they are ‘far too expensive’ Don’t knows: I am currently willing to pay – 10.5%; In the future, I am willing to pay – 17.4% Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 11. Cost of advice: give the client some control
      • Q: How interested would you be in the following options in order to keep the costs of advice manageable?
      Source: J.P. Morgan Asset Management/Citywire Market Intelligence; Base: 86
    • 12. 8 things we are learning
      • Consumers are happy with a selective range of solutions BUT want an unrestricted range of providers within those solutions
      • Advisers need to have service models to accommodate both ad-hoc and ongoing advice needs
      • Advice needs to be shown to translate into superior returns
      • Funds are fine for portfolio management – so long as the client strategy is customised
      • ‘ Advisory self-service’ could be a growing market
      • 0.5-1% seen as acceptable fee range for ongoing advice
      • Consumers are receptive to options to manage the cost of advice
      • When a consumer discovers their ‘Trusted Adviser’ – they stick with them
    • 13. Important information
      • For professional advisers only - not for onward distribution.
      • Please be aware that this material is produced for information purposes only and should not be taken as or construed as a recommendation or advice. The opinions and views expressed here are those held by J.P. Morgan Asset Management at the time of publication, which are subject to change. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material. JPMorgan Asset Management Marketing Limited is authorised and regulated in the UK by the Financial Services Authority. Registered in England No: 288553. Registered Office: 125 London Wall, London EC2Y 5AJ.