Adviser Business Planning & Segmentation Strategies for 2013

1. Adviser Business Planning & Segmentation Strategies for 2013

2. 2011 RDR Survey • Survey ran for 2 weeks in December 2011 • The survey saw some 740 respondents and the results, with comments, stretch to over 150 pages. The document makes for compelling reading. • We did it because nobody else had given it a thought

3. 2012 RDR Survey • In December 2012 we ran a second RDR Survey in association with research company - GfK NOP • Together, we have been able to generate detailed insights into Adviser business planning and segmentation strategies for 2013 • Introducing Martin Grimwood, Divisional Director Financial Services, GfK NOP

4. GfK Financial specialities in both intermediary and consumer research for life, pensions and investments • Centres of Excellence: • MOI (Innovation and NPD) • BaCE(Brand & Customer Experience) • Digital • Qualitative & Ethnography GfK Financial Data delivery Infographics Market Sciences & data modelling GfK FRS GfKTube Mystery Shopping Data Processing and analysis Consumer Trends Offlinedata collection Onlinedata collection Passive measurement Longitudinal Consumer Panel Communities

5. Understanding of the intermediary sector developed over nearly two decades

6. Plenty of anger to RDR in the early years Leavers comments Will you and your business be RDR ready by the end of 2012? • “I shall be leaving because my business will die” • “I am winding up the business due to the excesses of RDR” • “Not sure what direction I want to go, retirement looks good at the moment” • “I plan to quit post 2012 as I don’t believe the industry is worth the personal risk given I am liable for every bit of advice until I die” “60% of my colleagues will leave the industry” Source: Panacea IFA (This is what my clients think about RDR Mr Sants – Survey): Q9. December 2011

7. A cultural shift for most IFAs wishing to remain independent Transactional Relationship (based on money capital) Mike Godfrey – Director Cube Financial Planning ‘We have taken the commercial decision to only engage with clients who meet our minimum criteria from a potential remuneration perspective, as we wish to retain the ability to provide a bespoke personal service….As such, we have tended to deal with a smaller number of wealthier clients.’ Portfolio Relationship (based on relationship capital) Mark Rodgers - MD Clay Rogers & Partners Migration to platforms and outsourcing investment decisions ‘The concept of “any business is good business” is so out of date, it is laughable,’ ……... ‘The main goal is to engage clients in long-term relationships that are very well remunerated. For this remuneration the client gets a first-class service and uncompromising advice.’ Challenge in 2-3 years will be to add value

8. However, restricted is now less stigmatised, and there is likely to be significant migration to restricted during 2013 July 2012 “Up to 30% of IFAswill become restricted within the next three years” Deciding factors Holding onto trail commissionRetaining referrals Prudential distribution change director Russell Warwick Two definitions of 'restricted‘: An IFA who chooses to restrict activitiesin some way A tied agent (sell only own company's products or funds) products.

9. The market is set to undergo a number of changes that will affect the entire industry October 2012 January 2012 October 2012

10. Filling the knowledge gap Integrating research amongst intermediaries with established proprietary consumer research to provide a 360 view Investor behaviour Intermediary behaviour • Understand how intermediaries plan to work in a post-RDR world • Understand how investors react to the post-RDR world • Accurate market sizing

11. 2012 IFA GfK survey methodology

12. Adviser intentions for 2013

13. There has been little movement in IFA intentions since 2011, however, slightly more feel prepared What are your business intentions for 2013? (%) Are you ready for RDR? – Answering “yes” 20% answering “no” 13% answering “Don’t know” • Of those aged 60+, only 59% are ready for RDR with 26% saying “no” and 16% saying “I don’t know” • Of the “no’s”, only 23% have obtained Level 4 qualification status • Alternative plans for 2013: • 17% selling the business • 40% continue to operate but no longer offer advice on investments • 43% stating other plans including “will finalise my exams”, “will be ready ASAP” and “retirement” • 16% Restricted – specialising in a specific product area • 4% Restricted, as an appointed representative/tied agent Source: Panacea IFA (This is what my clients think about RDR MrSants – Survey): Q10. December 2011 GfK / Panacea RDR Readiness Survey Q1a, Q1a2 and Q1e. December 2012

14. Business Plan

15. Polarisation between those IFAs who believe they can retain most clients and those who are targeting only the most profitable What proportion of your client base do you think you will be unable to service post RDR? 55% “I will be able to retain most of my clients by offering different services to match their needs” 52% “I need to be ruthless and focus only on my most profitable clients” Source: GfK / Panacea RDR Readiness Survey Q5. December 2012

16. Majority of IFAs are segmenting, but many are late in doing so and there is considerable uncertainty whether they have got it right Only 27% of those planning to be independent next year have finalised their segmentation process ready for 2013 (another 27% are in the process of doing so) Source: GfK / Panacea RDR Readiness Survey December 2012. Q3 / 6 Base: all intending to be Independent advisers post RDR

17. AUM is the key parameter for advisers segmenting their clients, however relationship and future scope are also important factors % segmenting by the following parameters Mean No Yes 10%+ Yes 9 40 23 60 Product portfolio composition 41 3 91 97 Value of known assets Targeting profitable clients who have the affordability to pay for advice No. of investments placed by you 5 56 12 44 Potential to pay for advice 16 30 42 70 Personal income 14 33 25 67 Identifying likelihood to pay for on-going servicing (reflecting current relationship) Type of current relationship 22 12 69 88 12 Paid for advice in the past 50 16 50 Life-stage 11 38 28 62 Source: GfK / Panacea RDR Readiness Survey December 2012. Q4b Base: All IFA intending to be Independent advisers post RDR and segmenting

18. £50k - £100k+ in AUM seems to be the benchmark at which advisers will begin to segment their client base Minimum asset value needed to proactively service a client post RDR I need to be ruthless and focus on my most profitable clients? 43% of those planning to remain independent think that they will lose 10% or more of their client base post RDR – meaning that there will be an inevitable fallout of orphaned clients through both segmentation and preference. However, some are planning to offer a reactive, transactional proposition to meet most needs 52% agree Source: GfK / Panacea RDR Readiness Survey December 2012. Q2 / Q4e / Q5a Base: All IFA intending to be Independent advisers post RDR

19. A typical differentiated service proposition, ranging from fully bespoke independent advice, through to a transactional service

20. However, it is clear that most will offer a transactional service

21. Potential business sources in 2013 23%“Helping local business meet their auto-enrolment requirements will be an important source of business 17% “I intend to diversify by handling wealthier clients’ GI needs” 39% “Receiving referrals from solicitors and accountants is very important to my business” 17% “Workplace marketing will be an important business stream Source: GfK / Panacea RDR Readiness Survey Q2. December 2012

22. Commission is still a significant contributor to IFA income, and for many a shift to fee only remuneration will be a big bang in 2013 What proportion of your business is currently fee based vs. commission based? (%) For IFAs wishing to remain independent, there is a huge gap for them to fill when commission is banned in 2013. For those moving to restricted advice the gap is even larger. Source: GfK / Panacea RDR Readiness Survey December 2012. Q9 Base: All intending to be Independent advisers post RDR

23. On average, surveyed IFAs believe that by the end of 2013, 42% of their individual turnover will still come from trail commission Proportion of individual turnover from trail commission (%) – all intending to be Independent in 2013 Mean 42% Mean 40% Independent IFAs believe that their income from trail commission will be relatively unaffected by changes implemented by RDR Source: GfK / Panacea RDR Readiness Survey December 2012. Q8 Base: All intending to be Independent advisers post RDR

24. Only a quarter planning on charging an hourly rate for advice, most preferring adviser charging through the product Planned charging structures post-RDR Remuneration figure No differences by region Fee paid directly by client – hourly rate £168 p.h. Fee paid directly by client – task based £219 p.h. (£245 IFA, £190 Retricted) Fee paid directly by client - percentage of amount invested 3-5% (majority) Adviser charging through the product 25% 42% 55% 72% IFAs will be offering charging solutions to match their differentiated service propositions Source: GfK / Panacea RDR Readiness Survey December 2012. Q7 / 8 Base: All intending to be Independent advisers post RDR

25. Product providers & choice criteria

26. Definite trend towards platforms and away from direct interaction with providers 69% “Most of my client investments will be on platforms” vs. Independent Restricted 53% “I will have much less direct interaction with product providers in the future” 74% 54% 52% 56% Source: GfK / Panacea RDR Readiness Survey Q2. December 2012

27. Panels will include fewer providers, however selection criteria will remain unchanged for now, with the focus being on adviser charging in the short term Are you planning to increase or reduce the number of providers on your panels/best advice lists post RDR? Will the criteria you use to choose providers change? “If they do not accommodate adviser charging it is unlikely I will use them” “Must accommodate adviser charging” “I will if possible not use providers who also sell directly to the public” “Maybe. Greater reliance on platforms / wraps, so as to help cut down administration and time when undertaking reviews” Source: GfK / Panacea RDR Readiness Survey December 2012. Q11 & Q12 Base: All intending to be Independent advisers post RDR

28. Choice criteria won’t change in the immediate future Only 71 mentioned a change Q11 Will the criteria you use to choose providers change? If so, how?

29. IFAs are seeking communication from product providers; information on products, information on commission, and information on clients How important these services from product providers are to IFAs - % giving “9” or “10” on a ten point scale where “1” is “not important at all” and “10” is “extremely important” • Product provider requirements • Clear /simple / transparent products • Products that can facilitate adviser charging • Clear information on what charging models they can and cannot support • Guidance / information / support Source: GfK / Panacea RDR Readiness Survey December 2012. Q9 Base: All intending to be Independent advisers post RDR

30. A clear demand for support from providers in an uncertain world 591 individual suggestions Q9a By way of support, what do you need from providers to support you in a post-RDR world?

31. Very few advisers are sure about the future, however those who are put the client at the centre of their requirements Only 149 individual suggestions “Q10 What new product or service propositions do you want providers to focus on post RDR?

32. Filling the knowledge gap - 2013 research programme Integrating research amongst intermediaries with GfK FRS consumer research to provide a 360 view Investor behaviour Intermediary behaviour • Understand how intermediaries plan to work in a post-RDR world • Understand how investors react to the post-RDR world • Accurate market sizing

33. Remember • The biggest resource that Advisers have is their knowledge and experience • Their biggest strength is the ability to survive despite all that regulation can throw at them • And if it doesn’t work…as the FSA’s Peter Smith was quoted as saying “We will simply think of something else”!!!!

34. Thank you and be careful out there. Derek Bradley, ceo derekbradley@PanaceaAdviser.com www.panaceaadviser.com