Being honest, I used to be quite ‘anti’ client segmentation.

    While we probably did it at some level internally, we never went in for that whole ‘gold, silver, bronze’ level of service.

    We just had those clients that were on the full Magenta financial planning service, and there were some clients who evolved to have more of a reactionary, ad-hoc service, for example those with less complex needs, or later stage decumulation.

    However, in 2018-19 we’ve been doing a lot of work around this, and are looking at introducing a lighter touch service that would sit between these two.

    As part of this service, we’ll ensure people aren’t missing out on tax allowances and being able to obtain protection and investment advice, but won’t go to the level of detail that a full lifestyle financial planning approach would merit.

    We have come up with a suitability matrix which is something we use internally – I don’t see us making it a client-facing document.

    It sets out that the full Magenta service would typically suit someone who is over 45 years old, both those in accumulation and decumulation, and the lighter touch service applies to those younger than 45, and firmly in the accumulation stage.

    At retirement clients have to have the full Magenta service because we couldn’t possibly manage all of the complexities involved in flexible pensions nowadays without the full service.

    Those with no or little knowledge of investments would likely sit in the light touch service, whereas more advanced investors with complex needs would sit within the full service.

    We also have a capacity for loss measure as part of that matrix.

    Where people are getting that reactionary service, that is, we’re only acting for clients when they ask us to, they would need to have a high capacity for loss for that to be suitable. We wouldn’t be happy offering a reactionary-only service where losses are going to have a significant impact.

    The lighter touch service is likely to done on a subscription-based model, rather than the traditional percentage-based charging model.

    We still want to offer an ethical or positive impact investment option as part of that service, so there may be some overlap between the investment propositions.

    But we want to ensure that complex products aren’t offered as part of this, perhaps by applying filters on a platform. This would involve excluding things like business property relief solutions. What the clients need will determine where they sit on our matrix/segmentation.

    Segmenting clients for us is based on factors like what type of investor they are and investment experience. Level of assets is still a factor as well, you can’t argue otherwise, but it shouldn’t be the only factor.

    There will also be assessments on which clients are best for which platform (costs and charges), and the suitable wrappers and providers we would use.

    Switching and cost disclosure

    We’ve always had rules around replacement business that we follow consistently.

    If a product recommendation comes out as more expensive than the client’s existing product, the evidence of suitability has to be very strong in other aspects in order to justify making that change.

    We have certainly had situations where we’ve thought: “We can’t possibly make that change, it’s not in the best interests of our client.” 

    Equally, there are times when our recommended solution is more expensive but we may recommend it anyway if we feel there are justifiable reasons that outweigh that extra cost.

    If that’s the case, we’ll go into quite a lot of detail into the suitability report explaining why we’ve made the recommendation we have.

    We’ve got the next round of Mifid II cost disclosure coming up, and we do think that is going to be a challenge. We’ve tried to be quite pragmatic about it, and do the best we can in disclosing what we’re meant to - without much in the way of guidance!

    As I understand it, there will be differences in the way some platforms are reporting charges. Some are reporting annual fees based on the tax year, whereas we’ve been adopting a review-to-review basis.

    We’ll probably still be able to do that, but it will be a manual exercise rather than an easy report.

    And then there’s the fund groups, who are all doing it differently, and caveat their figures by saying these are only cost estimates.

    Ultimately, all we can do is do our best with the information we are given, in line with the support and guidance we get from compliance. Our lead paraplanner Rebecca Tuck is very involved with events like Paraplanner Powwows that can help us understand the best way of doing things.

    You can only work with what you’re given with this. The lack of regulatory guidance on the specifics means these rules are open to interpretation.

    We have the advantage of being a small company and so are able to change and adapt as best practice emerges.

    But I do believe that sending out fees in isolation in an updated statement is a really bad idea. It unsettles the client without any context or confirmation of the value of planning advice you’ve given to them.

    Clearly, I think the conversations around fees will come under more strain this year, especially if we have another poor year in terms of market performance.

    Lower or lack of returns with the same level of charges will mean more questions from clients, particularly if we’re pushing more charges disclosures in a different way.

    There’s a fine balance we need to achieve between wanting to do the best for your clients, managing your business and following the rules.

    Our overall approach to suitability

    Our service always starts off with cashflow planning, which acts as the bedrock for us to then advise on the most suitable course of action, rather than starting with a product sale. Everyone also gets a pre-action report – all advice is agreed beforehand.

    From a demonstrating suitability perspective, we pride ourselves in making sure all of our suitability reports are of a high standard.

    We encourage the sharing of best practice, knowing that we can always do a better job, and challenging ourselves to make things easier to understand.

    One of our aims for 2019 is to reduce jargon.

    There are words we know so fall back on them and use them every day, but do clients genuinely understand what we’re talking about?

    The main worry for us is we produce these excellent, high quality reports and no one reads them. So how do you make sure the key points are put across?

    As part of our initial conversation we discuss client knowledge and experience, their understanding of risk and investment and whether they’ve ever had to manage money before.

    We deal with a lot of clients who are going through a divorce, suddenly they’ve got to money to manage which they may have never done before or don’t understand the value of investing.

    Once we’ve had that conversation, we can then adapt the way we write our reports and tailor them accordingly. There is a template, but that’s only the starting point.

    We also try and add a lot of tables and pictures as well as breaking down the jargon. Take protection as an example, we talk about ‘premiums’ when we could instead say ‘what you have to pay every month’.

    For me, a lot of what suitability comes down to is not whether your advice is right or wrong (because it should always be right!), but whether people genuinely understand what you are advising. That’s our focus – getting clients to understand our advice.

    Overall, I’m not doing my job properly if I’m not following the FCA’s guidance and rules or if I am not highly qualified. As far as I’m concerned, that should be something a client can rely on as a given.

    The same goes for not following the code of ethics set out by your professional body and acting with integrity.

    So once that’s taken into account, from the client’s point of view it’s a question of do they actually understand what it is they’re agreeing and committing to?

    It’s our role to explain how this advice is going to help them, what’s in their best interest, what the costs are, and ultimately how this advice is going to make their lives better.


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