Peter Bartram 2 Mar 2017 10:00am

A guide to financial planning

Financial planning offers excellent potential for accountants as an additional revenue stream, but, says Peter Bartram, you need to have your own plan

Planning ahead
Caption: Illustration: Tamara Staples

Accountancy practices looking for new revenue streams could do worse than study the examples of Grant Thornton and Mazars. Both are driving growth by providing personal financial planning – a catch-all term that includes cradle-to-grave advice on topics from investment planning to wealth transfer and probate – to a wider range of clients.

At Grant Thornton, annual revenues from this line of business currently total £10.5m with what Neil Messenger, head of wealth advisory at Grant Thornton UK, calls “strong gross margin”. He adds: “We expect to increase revenue over the next three years by 50% while retaining margin levels.”

At Mazars, personal financial planning revenues have reached £7m per year, 6% of UK fees, according to Ian Pickford, who heads the firm’s financial planning team. Mazars is also growing healthily, with an ambition to hit £20m by the end of the decade. “Demand for bespoke advice has never been greater,” Pickford adds.

There are plenty of drivers pushing the growth of personal financial planning, explains John Gaskell, head of personal financial planning at ICAEW. These include an ageing population, global uncertainty, cutbacks in welfare benefits and banking scandals. Complex changes in national pension policies – including “pension freedoms” – have also stimulated demand for financial advice.

If bankers are not generally trusted, and solicitors inaccessible, who better to provide this advice than the reliable local accountant? “ICAEW chartered accountants have relationships with a segment of the population that need personal financial planning – and who are used to paying a fee for advice,” says Gaskell.

The opportunity for practices to become major players in the burgeoning financial planning market is one of the trends identified in ICAEW’s Tomorrow’s Practice report. Chartered accountants have an opportunity to shift from a life of reactive client relationships to become proactive business leaders, explains Amanda Digne-Malcolm, director of the Institute’s Members’ Department.

“Accountants already have a detailed knowledge of their clients’ business life,” she says. “Planning for how this influences their personal goals is a natural progression and complementary service.”

Claire Sleep, practice manager, explains that offering personal financial planning, developed through offering services such as probate, extends the life of a client relationship. “It builds and reinforces chartered accountants’ position as trusted advisers,” she says.

Lessons from America

And this isn’t just a UK trend. In the US, thousands of certified public accountants (CPAs) already provide similar services to their clients. The American Institute of Certified Public Accountancy (AICPA) provides a Statement of Standards in Personal Financial Services to guide practitioners. Richard Bertin, a partner at wealth managers Stonehage Fleming, who has experience of the US market, says that UK accountants could learn lessons from CPAs’ experience on the other side of the Atlantic.

Bertin, speaking in a personal capacity, says one of those key lessons is not to expect a new move into financial planning to work overnight. “Every business takes time to grow, generally with capital and time investment alongside it,” he says. “At the same time, the hard factual skills implicit in a good accountant need to be blended with soft skills. The backbone of a good financial plan is the depth of fact-finding about the personal goals and ambitions of the client – not just their balance sheet.”

In the UK, there are millions of small business owners, company directors and entrepreneurs who will be likely clients for a financial planning service. In general, individuals whose income and assets put them in the top 15% of wealth owners are likely to be the prime targets. But the market drivers cited by Gaskell are likely to enlarge the pool of potential clients in the years ahead.

So how should a practice that wants to harvest its share of this bounty set about it? Gaskell suggests a good first step is to create a checklist that fee earners can use in client meetings to help them identify opportunities to speak with clients about their pensions and retirement plans, investments and inheritance tax. As a matter of course, accountants advise clients on their tax affairs. If personal financial planning is deeply embedded in tax planning, then these conversations should naturally flow.

He goes on to say that from his experience, clients are generally delighted to know their trusted accountant is interested in helping them manage their personal financial affairs, and that accountants often underestimate the value this delivers. “Clients need help from someone that they can trust,” says Gaskell, “even if that help only extends to translating financial services jargon into plain English, making sense of a pile of complicated pension statements, or explaining in generic terms the basic difference between an annuity and a flexible pension drawdown plan.

Powered by quality

Messenger is in no doubt about the critical success factors that have powered the service forward at Grant Thornton. Building relationships is the key, he says. “Relationships with clients and across the firm will determine whether a financial planner will be successful or not.” A winning practice is about people – staff and clients. “It is not about products and services or technical ability.

Nor is it solely about regulatory compliance, market changes or technology. Focus on people and the financial planning service will be successful,” says Messenger.

At Mazars, Pickford sees the professionalism and quality of the staff as a critical success factor. “One of the challenges is recruiting the right people,” he says. The firm has been running a graduate recruitment scheme for several years, because: “the engine of business growth is the development of young talent”.

Pickford also stresses the need to integrate the financial planning offering with the rest of the firm. “Financial planners hardly ever go to meetings on their own,” he explains. “Often they’ll be teamed up with a tax or other specialist.” And one of the reasons is that financial planning is often a lead service in winning new business for the firm. “It gives us a competitive edge over other practices, some of which have offloaded financial planning business to other advisers.”

Financial planning not only wins business – it keeps existing clients on the books when they otherwise might have drifted away. “If you’re working with someone’s personal affairs, why would they go anywhere else?” asks Pickford. “You understand their motivations better than any other advisers.”

Despite the emphasis on people and relationships, most of the firms that have made a success of personal financial planning have invested heavily in technological support. Many use specialist third-party software. Sable International, which includes accounting and wealth management among its portfolio of services, uses IRESS software, which enables advisers to model and graph clients’ financial planning options.

Grant Thornton has developed its own tools in-house. Messenger argues some of the third-party solutions on the market are often designed for too broad a range of clients. “They try to be all things to everyone and often cloud the situation,” he says.

Software solution

However, most firms will not have the resources to develop their own software. And Bob Freeman, UK director of Voyant, one of the main players in this market, says there is growing interest in the firm’s software from chartered accountants. Mazars is already a user.

The big benefit of modelling systems, Freeman says, is that they help to simplify complexity.

The charts and graphs showing a client’s financial options can inform and illuminate a planning discussion. He argues modelling systems can also help to kill the demon of mis-selling, a curse that has bedevilled the financial services industry for more than 20 years. “Because the systems are product neutral, they take away the emphasis on selling a product and focus on having a meaningful discussion,” he says.

Despite the juicy prospect of high growth and healthy margins from personal financial planning business, many accountants are still nervous about committing to it. Many see regulation as a barrier to entry – with high profile examples of companies among other financial services firms being handed massive fines by the FCA ramping up the fear factor.

But Gaskell points out that accountants can start to offer a financial planning service without an FCA licence if they take the Designated Professional Body (DPB) route (see panel). “After all, accountants have been providing elements of this advice – and not charging for it – for a long time,” he says.

ICAEW’s Tomorrow’s Practice report has pointed a way forward. The Institute is increasing its support for members with a programme of webinars and events, educational material and helping to build an online community of personal financial planners. If the growth predictions prove correct, offering effective financial planning advice could be one factor underscoring the most successful practices of all sizes in the future.

But to win the prizes, practices will need to overcome the fear and develop a plan. “Be committed to it,” says Pickford. “Don’t be half-hearted.”

How to set up

An accountancy practice that wants to develop a personal financial planning service has three main options:

1 It could acquire a Designated Professional Body (DPB) licence. This will allow the practice to explain and evaluate the advice a client has received from a financial adviser – including warning against bad advice and endorsing good. It will also allow the practice to arrange to implement a financial adviser’s advice and take part in an integrated financial planning solution for its clients.

2 It could become a practice authorised by the Financial Conduct Authority (FCA), which would enable it to provide a wider range of services to more people. The practice could acquire FCA authorisation directly or through a connected wholly-owned subsidiary. Unofficial figures suggest there are around 100 firms with a main-practice authorisation and possibly 300 to 400 with wholly-owned subsidiaries.

3 Or it could do nothing and restrict itself to unregulated activities. “The DPB licence is a good solution for practices that want to work alongside a financial adviser to provide a holistic service for their personal clients, without dealing with an additional regulator,” advises Nick Reynolds, a senior manager in professional standards at ICAEW.

“With the flexibility introduced by pensions freedoms it’s more important than ever that clients receive balanced and impartial advice. A DPB-licensed practice can play a big part in this – with the accountancy practice working alongside a financial adviser in a way that an unregulated firm cannot.

“Clients of a DPB-licensed accountancy practice can benefit from a combination of the product-specific expertise of the financial adviser, combined with the help and guidance of their professional accountant and tax adviser who already knows them.”