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As financial planners, we often find ourselves caught between delivering excellent client service and running an efficient, compliant business. Karl Dines' recent appearance on That NextGen Planners Podcast offered some invaluable insights that could help reshape how we approach these challenges. Using the insights from Karl's years of experience here are some key lessons to help promote a more efficient and compliant practise.
The True Cost of Financial Planning
One of the most striking revelations from Karl's discussion was how frequently planners underestimate their cost of manufacture. In Dines' experience examining charging structures, 95-99% of firms discover they're charging significantly less than they should be. This isn't just about profitability – it's about sustainability and delivering value.
Take Action: Conduct a thorough time-and-motion study of your advice process. Document every step, including administration, paraplanning, and advice delivery. Remember Hofstadter's Rule: we tend to underestimate time requirements even when we know we're prone to underestimating.
Rethinking Client Segmentation
The traditional assets-under-management approach to client segmentation is becoming outdated. Instead, consider segmenting based on client circumstances and needs. This isn't just good business practice – it's increasingly important for regulatory compliance, particularly under the Consumer Duty requirements.
Take Action: Review your client bank and create segments based on life stages and circumstances rather than just portfolio size. Pre-retirement, post-retirement, and wealth accumulation could be your starting points.
The CIRP Approach
Rather than treating Centralised Investment Propositions (CIP) and Centralised Retirement Propositions (CRP) as separate entities, consider adopting a Combined Investment and Retirement Proposition (CIRP). This holistic approach better reflects how services interact with charging structures and helps ensure better client outcomes.
Take Action: Map out how your investment and retirement propositions overlap and identify opportunities to streamline your approach while maintaining service quality.
Price and Value Transparency
The debate between percentage-based and fixed-fee charging continues, but what's crucial is ensuring transparency and demonstrating value. Consider implementing caps and collars on percentage-based fees to protect both your business and your clients.
Take Action: Review your charging structure and assess whether clients can easily understand what they're paying. If you're using a hybrid model (like percentage plus retainer), calculate the effective rates at different portfolio levels to ensure fairness.
Remember, there's no one-size-fits-all solution. The key is having a well-documented, justifiable approach that works for both your business and your clients. As Karl emphasised, it's not about finding the "right" way – it's about finding your way and being able to evidence why it works. For more on all of this you can check out the full episode HERE.