Get your financial advice here. No sum too small!

Do we need to question one assumption about the IFA market, that they won’t advise on small pots? The FCA survey of 233 adviser businesses suggests that surprisingly few advice firms have a minimum threshold on clients’ investable assets and that most advisers are reaching further down the market than might be expected.

This is despite at least a decade of owner managers being urged to adopt minima by consultants, analysts, providers and their peers. The argument runs that only at £100,000 at least in assets, can advisers and planners add value and earn a decent fee.

The consensus view has been that adviser firms are increasingly restricting themselves to the better off. Yet that is not really the picture painted by the research.

The charts below show many adviser firms with a significant numbers of clients’ with small and medium sized pots both pre and post pension freedoms.

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We would urge a little caution about how the question was phrased – the small pots are not the norm. But they represent a reasonable number of clients’ as the figures we have drawn out show.

  • In 18% of firms, customers with pots of less than £10,000 accounted for at least 5% of business
  • In 55% of firms customers with pots of less than £30,000 accounted for at least 5% of business
  • In 74% of firms customers with pots of less than £50,000 accounted for at least 5% of business

The FCA figures also suggest that when it comes to investing in a pension rather than taking an income, roughly the same picture applies.

bar-chart2

  • In 51% of firms, customers with investable assets below £10,000 accounted for at least 5% of the total given investment advice
  • In 82% of firms, customers with investable assets below £30,000 accounted for at least 5% of the total given investment advice
  • In 91% of firms customers with investable assets of less than £50,000 made up 5% of total given investment advice

Finally, only 38 advice firms said they had minimums and of those 15 were set at £30,000 and 21 at £50,000. This is, of course, nowhere near the £100,000 and up to £250,000 we usually hear about at conferences and seminars.

Another interesting aspect of the paper arose when adviser firms were asked to rate various criteria for taking on a client.

  • 73% rated a customer’s personal circumstances as important or very important
  • 76% rated a customer’s relationship potential as important or very important
  • 68% rated a customer’s other assets and liabilities as important or very important
  • 41% rated pot size as important or very important while only 13% rated pot size as very important

This research has given us pause and we have listed some thoughts below.

Advisers are flexible. Of course they are!

It is clear that many advisers’ have not adopted fixed minimums but approach clients’ much more holistically and flexibly with the potential of a client arguably as important as the assets they hold. Wisely advisers’ are also looking at total wealth.

Customers don’t have to fall into the advice gap if they persevere

People who persevere in a search for an adviser are likely to find someone to deal with. It may be that customers with smaller pots are still likely to be intermediated in some way.  Among other things, providers’ may want to ask whether advisers’ will always want to transfer low value clients’ or would they rather have help with automating more of the process while still maintaining a relationship themselves.

We think advisers are moving up-market, but it’s a gradual process

The advisers’ we have spoken to, unsurprisingly, tell us that they are keen to attract and retain wealthier clients where they can add value and generate more income. Yet for many, the approach is evolutionary, driven by changes in the services they offer and the sorts of new clients they are seeking. This eventually changes the average client profile. Some of the ostensibly low value clients may be accounted for by long-standing clients or advisers taking on the family members of wealthier client’s but others may be good ‘lifetime’ prospects – say a newly qualified engineer or dentist. Many advisers remain reluctant to cut ties with older clients completely while having frank discussions about new charging regimes. Is there scope to provide assistance to manage them?

Firms that help advisers manage lower value clients efficiently may be on to a winner

Providers, technology and support firms are right to consider creating solutions and offering support to firms to help them manage clients with smaller pots more efficiently, cost effectively and therefore profitably. It will give advisers more time to spend with better off clients too.

Advisers are looking at the potential value of a client as well as the ‘current’ value

Besides specific high net worth offers – say for VCT’s or EIS’s – if a fund firm is offering a more general and broad investment solution, it may pay to bear in mind that advisers are not pigeonholing clients and see their potential value as well as their current value. It could have implications for how platforms and asset managers help their adviser partners engage with investors.

Research, engagement and carefully calibrated segmentation looks key

Despite this research, clients with bigger portfolios still look to be the norm. But this research on both the percentage of investment business done (discussed in a previous post) and pot sizes advised on, gives us the basis to ask some more detailed questions to help us understand how to engage better with advisers and advisers’ clients, whatever their assets. Certainly strict minimums are probably not widespread or at least not yet. We all may need to adjust our thinking accordingly.

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