Financial Adviser – making the move to New Model Adviser
April 2010

Article # 1 Over the coming months, I will be writing a number of articles looking at how traditional commission based advisers can change their businesses to the “New Model” of financial planning and successfully meet the requirements of the FSA Retail Distribution Review (RDR). In this series of articles, I will outline how my practice made the change from “Old Model” commission only to “New Model” fee based 10 years ago. I will cover the mistakes we made, the things we could have done better as well as the successes we have enjoyed in our transition. I do not wish to preach that the way we transitioned is the only way to do it nor that our way is best – the purpose of this series of articles is to help you to embrace the need to change and to address the practical steps needed to make the transition successful. Essentially, I want you to learn from the mistakes I made and not to “reinvent the wheel” by starting from scratch yourself.

I have experienced the challenges that a small traditional IFA faces in making such a transition. By adopting some of the measures I will outline in this series of articles, you will be able to successfully transform your IFA business to a New Model practice before the RDR deadline in 2012. So where to start? Well, a bit like the financial planning process you need to start with a goal. Take time away from business and ask yourself “what is my vision for my business?”

What is your vision?

If you could envisage your perfect IFA business what would it look like? How big would the business be? How many hours would you work? How much revenue would it generate? What type of clients would you serve? How many clients would your business have? In short, what would it take for you to be truly happy in your business??

In my view, a successful IFA business would exhibit the following characteristics;

• The business works with nice clients who value the services provided and who happily recommend friends and colleagues to the IFA practice
• The business generates high levels of profit
• The owner and staff do not have to work under significant pressure and stress is minimal
• The owner does not work long hours and evenings and weekends are “work free” zones
• The business has a high level of predictable income – year in, year out.
• The business is debt free & has significant capital reserves.

So, in short the IFA works minimal hours for maximum revenue with good staff and nice clients.

What is your reality?

You may have a traditional IFA business that has challenges when compared to the above view of a successful IFA practice. There are many IFAs who are hanging on by a thread, are heavily indebted to their banks, who need the transfusion of cash from indemnity commission to pay the bills and are stressed about how they will cope with the demands of the Retail Distribution Review (RDR). With investment business levels having fallen through the floor in the last 2 years and the contraction of the mortgage market many IFAs are feeling overwhelmed with the business challenges they face. Add to this the abolition of commissions, the need for higher level qualifications and the demand for higher capital adequacy; it is understandable that there is a rush for the exit door.

However, before you throw in the towel I would ask you to consider how great your business could become if you would be prepared to embrace change, work hard and finally finish your career on high (perhaps by selling your business for a premium) rather than a low (walking away with nothing). There is huge demand for quality independent financial planning advice and virtually no competition – do the maths - the population cannot be adequately served by the already small number of IFAs, so if numbers reduce further the remaining IFAs will have their pick of clients. The key to forming a robust solution for traditional IFAs is to undertake an honest review of your “Reality Gap” – what does your business look like now and how far from your ideal business model are you? There is no point in sugar coating things – if it’s not good then accept this reality and you can start to make things better

What is your reality gap?

As a traditional IFA working to the conventional commission based business model, a number of frustrations exist, namely;

• It irritates me that I am not paid for all of my work/advice/services
• I don’t like working nights/making home visits
• I wish I had better quality clients
• It’s depressing to start from scratch every 1st of January with little/no predictable income
• Commission levels are being reduced – I am very worried

The RDR will radically change the landscape for traditional IFAs, whether they want these changes or not. Advisers are being pushed to change their businesses by the regulator largely because self regulation has not worked and the IFA sector has not willingly adopted changes to business practice. There are strong opponents of the RDR reforms, but I sense a momentum has developed to finally embrace the need to become more professional and align ourselves as equals with other professionals such as solicitors and accountants.

The move to the “New Model” IFA business can be scary. When I first began my journey, I was going against convention. Now, there are sources of help available to traditional IFAs from professional bodies like the PFS and AIFA. AIFA website has details of their FF>>WD programme which offers excellent help in making the transition.

Also, a number of “business transition” consultants are active in the IFA sector such as FP Advance (www.fpadvance.com) ,Inspired Consultancy (www.inspired-consultancy.co.uk) and New Adviser(www.ifa-masterclass.co.uk).

So, get excited about the change to New Model rather than put off taking any action. In the articles that follow we will look at some of the barriers you will face in the transition process and how you can overcome them. There is a lot of ground to cover, but if you start by seriously looking at your “reality gap” you will be laying the foundations for a solid base from which to build your New Model practice.

What are you tolerating?

Once you have completed your reality gap analysis, you will see clearly that there are certain things you are tolerating in your business and in your life. You will find yourself asking “why am I dealing with this client – I don’t make any money from him and he’s a pain in the neck” or “why do I do this?” because the reality gap analysis will highlight the things that you are doing that are not the things you have said you want to do in your perfect IFA business model. This should light a fire in you to make changes – your future does not need to repeat your past. Question?

How many psychologists does it take to change a light bulb?? Only 1… but the light bulb has to want to change!!

Carl Melvin BA (Hons),CFP - Chartered & Certified Financial Planner
Managing Director of Affluent Financial Planning Ltd.

Ends


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