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17 May 2010

6 in 10 advisers report an increase in the time spent talking with clients 6 in 10 advisers now spend more of their efforts on financial planning than on investment selection Half of advisers say that clients now trust them more LONDON, May 17 2010 - The economic downturn has led advisers to recognise that they need to challenge the traditional IFA business model and focus more on financial planning, according to a new report out today from Russell Investments and the Institute of Financial Planning. The report ‘Examining Today’s Financial Advisory Business: Investment Approaches and Current Practice’ surveyed the investment approaches of financial advisers in the UK and the changes they have experienced as a result of the global financial crisis. Six in ten advisers say more of their efforts are on financial planning than on investment selection, with 30% of advisers focusing their model almost entirely on it. This is a 9% shift towards financial planning since the initial study undertaken in 2008, when only 21% of advisers said they concentrated almost exclusively on financial planning. Today’s report shows that about a quarter of advisers now claim a balanced focus on both, and only 13% focus more on investment selection. Larger firms have most noticeably embraced a planning approach, with advisers from firms with at least five advisers more likely than those in solo practices to report a nearly complete focus on it (40% vs. 19%). It may be that the move towards RDR has encouraged IFAs to shift their businesses away from commission based models, as those advisers focused on financial planning indicate that an average of 57% of their revenue is from fees, compared to 47% for those with a balanced focus and 45% for those whose focus is on investment selection. The remainder of their revenue is fairly equally divided between initial commissions and trail commissions. Business models have also had to adapt to changes in client attitude and behaviour since the market downturn, according to the survey. 61% of advisers have noted an increase in the time clients are prepared to spend talking with an adviser about their investment strategy. Perhaps unsurprisingly given recent market volatility, 40% of advisers say they have noticed an increase in clients' conservatism, and more than one-third highlight greater asset diversification. Despite the financial downturn, just over half of advisers say that client trust in them has increased and 15% say that it has increased a great deal. This is perhaps a result of advisors investing time in communicating with their clients, with 53% keeping in regular contact, and 19% actually increasing contact. Some took the opportunity in regular reviews to help maintain client trust (14%). A larger share of these planning-oriented advisers than investment selection-oriented advisers also observed an increase in clients' trust in them (62% vs. 45%). Peter Hugh-Smith, Managing Director of UK Private Client Services, Russell Investments, commented on the research: “This report highlights the need for advisers to regularly review their business model. As we come out of recession and face the challenges of RDR, IFAs are having to adapt their businesses to this ‘brave new world’, and Russell has developed a practice management programme to help advisers overcome the issues they are facing. Our suite of tools and concepts is designed to help advisors improve focus, enhance profitability and tangibly demonstrate their added value to their clients.” Nick Cann, Chief Executive of the Institute of Financial Planning added: “For the second consecutive time, IFP is pleased to work with Russell Investments on this valuable research project. That up to half of advisers have been able to increase client trust is a testament to their training and professionalism, and the increase in the number of advisers turning their models to financial planning indicates a positive future for the profession.”

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