How to build a strong recurring income model

Patrick Ingram, head of corporate relationships at Parmenion, explains how to achieve an efficient and affordable proposition

January 2013 will definitely herald the arrival of our new regulator, even if the RDR timetable is re-arranged, deferred or reassessed.

This is a landmark event and is set in stone. The new regulator is the Consumer Protection and Markets Authority, and its new head, Martin Wheatley, has vowed it will become the consumer’s champion.

The theme for IFAs to consider in this context is not getting anchored on practices and lines of thinking that have their origins in the days of commission-based selling.

The imperative is to look ahead to how patterns of business will change in the new regime.

So, with much greater visibility of cost from the consumer’s perspective, and the much-anticipated public awareness campaigns around RDR, every business manager’s key priority is to confirm that their business model will turn a profit, at an acceptable level of risk.

Key areas are: producing a saleable proposition, putting in place a key range of investment solutions, and looking for more customers not fewer.

The evidence of all the independent research conducted on public attitudes to financial advice is that most consumers do not appreciate its value when asked to pass over a cheque.

For the independent firm this means having certainty you are RDR compliant and your adviser charging led proposition will work in practice.

The only way to be sure is to try it with clients old and new, and to check you are thoroughly trained to win acceptance of its terms without significant negotiation on each and every case. And if it does not, having time in hand to make improvements is vital.

Recurring revenue

Building up the recurrent revenues of the business now is a prudent step should the margins on new business fall under consumer led pressure in just over a year’s time.

But what these recurrent revenues relate to and how much time has to be committed on them will be terribly important.

The key is to find those services which can be delivered effectively within defined timescales and at a profit. The centre piece will be the periodic review of a client’s fact find data and their investment position.

What will determine the profitability of this activity will be the amount of time it takes to reach an opinion on whether changes to standing advice or investment selection is needed.

In this context, when the adviser is presented with an up to date valuation and topical commentary by the discretionary fund manager (DFM), it makes the adviser’s job a lot easier and efficient.