Keep it simple: GMP’s RDR plans

Having had such ample advance warning, finding a working fee system that doesn’t alienate your clients shouldn’t be too difficult, adviser argues.

Article by Michael Trudeau, Published Nov 23 2012, FT Adviser

Based in offices in the Business Design Centre in London, GMP Independent Financial Advisers has been around for a while and has taken a long, deliberate approach in preparing for the Retail Distribution Review. According to Mark Sikora, partner and IFA at the company, GMP has been going since 1998 as a partnership, with two partners both involved in financial services since 1986.

Something for everyone

At a time when firms are talking a great deal about client segregation and how fee-based models will push clients out the door, it is refreshing to see a firm that takes such a simple and straightforward approach as GMP. Offering advice in many areas including pensions, protection, investments among others, GMP serves no particular client demographic. Instead, it offers a variety of simple charging options ranging from a monthly retainer fee to an hourly rate, to a one-off advice fee for single tasks. “I think the way we have been trying to restrict our base over the last few years, we have been segmenting our client base and in terms of active clients it’s in the region of about 200 to 250. “We have got people on both ends of the spectrum. We have a group of people who are retired and in draw down, people coming up to retirement, young families and people who are starting up in their careers and those that have accumulated wealth.” Coming from a model split between commission and fees, Mr Sikora hasn’t found the transition too strenuous. “We have been introducing fees gradually and they recognise things are changing and the labels are changing. In terms of our offering not that much will change. The way it works [is that] we used to charge a percentage of funds under management and that will continue but will be called adviser charging. “We have charged initial fees but that has been diminishing as we move our operation.” Typically the flat fee for a one-off task is around £600. The company also offers an hourly rate of £120 or a retainer rate of £40 a month. “We are keen to keep financial advice affordable so we think what we are running with is affordable to our client base and certainly when we discuss it they haven’t balked at the options available to them. “If someone wants advice £40 per month is cheaper than a gym membership.” “That gives the client access to us and to our time and experience. It means there won’t be initial charges on products we recommend. The only other charge they will be exposed to will be the 0.5 per cent of funds under management.”

Regaining trust

For Mr Sikora, one of the biggest hopes for the RDR is that it will engender trust for financial services in a population disillusioned by multiple banking and mis-selling scandals. He said: “It will be interesting to see, I don’t know how [RDR] is going to pan out. People use advisers because they trust them to do a particular task for them, and the industry has let people down with one scandal after another. IFAs generally do a pretty good job in terms of making their clients feel confident and saving clients from themselves, making difficult choices managing their money. “Larger organisations which are more sales driven have a different agenda and that’s where a lot of problems occur because the client isn’t the central focus.” However, the banks pulling out of advice market could come with a sting in the tail if they offer execution-only services to customers who really should be getting advice. “I think the banks will go from advice to execution only and the downside of that is it could be its Achilles’ heel because it means buyer beware. “If people aren’t equipped with knowledge they may end up with products not suitable for them and banks won’t be held to blame because it was execution only. “The FSA needs to be more aware of the products being sold and if they can have an influence there that will be positive. So the banks aren’t left to designing things which are primarily good for themselves but also good for the people who will use them. It’s a difficult blend and a difficult goal to achieve.”

Change is the only constant

While it’s true that the RDR has meant GMP has had to think about its model and adapt it along with everyone else, Mr Sikora is fairly zen about the whole thing and points out that IFAs have always had to be good at adapting. “It isn’t the first time IFAs have been faced with the ‘death knell of their existence’ and it hasn’t happened. They are the only group that have the one-on-one connection to their clients because we don’t deal in the same kind of numbers.” One indirect outcome of the regulatory overhaul could be better pathways into the industry for new entrants. With less of an emphasis on product sales, graduates equipped with knowledge will be able to skip the traditional first step of selling products for a big company. “Back when I started is was sales-driven and sink-or-swim and you had to go out and make sales. Things have changed a lot. You have got graduates coming out who have all the financial planning knowledge but don’t have the client base and traditionally they would go to an organisation sales-driven but now people are coming to you for your knowledge as long as they are happy to spend time with you.”

Platforms: one or more?

Currently GMP uses only the Skandia platform and although some advisers believe the RDR will encourage mutliple platform use, Mr Sikora disagrees. “I’m not convinced. I have got the status of whole of market and can look at whole of market in terms of what it’s costing. If I felt the platform wasn’t competitive I would have no hesitation of moving. “We don’t exclusively use that platform for solutions for our clients, and will still recommend products that are off that platform. “One of the reasons I am happy with Skandia is their products are transparent. I can see what’s going on and their structure is uncomplicated. I have seen a lot of other platforms where I haven’t got a clue what’s going on and that makes me feel uneasy. “Peter Mann’s focus is on client outcomes, not company profits. A number of discussions I have had with other agencies I don’t get that kind of impression from them.”