It’s to be expected that a person seeking financial advice might feel safer going with a larger firm – perhaps even one that is a household name.
So does size matter – we think it does.
Qualifications
Some investors believe that if they deal with a larger firm their adviser is likely to have higher level qualifications. Nothing could be further from the truth. Many large wealth management firms employ advisers who satisfy only the minimum competency required by the Central Bank which is Qualified Financial Adviser (QFA). The principal of this firm is a QFA but he is also a Specialist Investment Adviser and a Certified Financial Planner. The CFP qualification is the world’s most respected industry designation, held by only a select number of advisers. In order to receive authorization to use the designation, the candidate must meet education and experience requirements, must complete a course of study and pass examinations and must apply a fiduciary standard of care to their dealings with clients. In some countries the term “Financial Planner” is protected but not in Ireland and as a result there are numerous firms in the Irish market claiming to practice Financial Planning but who don’t employ trained Financial Planners. In other countries where Financial Planning is popular (Canada, the US, the UK, Brazil, India, China, Australia and New Zealand) the experience is overwhelmingly that people who engage in it are more content about their finances, feel more secure and have higher net worths.
There are around 22,000 QFA’s in Ireland and 900 CFP’s however many CFP’s work in some of the large pension administration companies so there are a lot less offering services to the public. This means that only around 5% of advisers you speak to have QFA and CFP. Having a CFP as your adviser doesn’t cost anymore than having a QFA.
Sales Targets
If you use a firm which employs 20 advisers, it will likely also have reception, administration, compliance and finance staff so it could well have 30 or more staff. It will need to accommodate these staff so it is likely that it has a large office, with all the expense that this entails. Operating costs for a firm like this will be substantial, perhaps upwards of €175,000 per month. In order to ensure the continuity of the business it needs to earn commission of more than this because the machine has to be fed. That’s a lot of pressure.
We are a boutique firm. We don’t have a large machine which needs to be fed so no pressure. We don’t have to sell a product to every client we meet. In fact we regularly tell clients that what they have is fine if that is the case. Neither do we have to shoehorn clients into the service we provide. If we aren’t a good fit for you we’ll tell you that.
Your Importance To Your Adviser
If you want to invest €250k you are an ok client for an adviser in a large firm. You are an excellent client for an adviser in a boutique firm.
There has been some consolidation in the industry and there is likely to be a lot more in the coming years. The move from the traditional (product driven) financial advice model to a more client focused model will result in a reduction in the number of advisers which are required and many principals who operate under the old model retiring. The client banks of these firms will be acquired by other brokerages. This means that advice firms are getting bigger and your importance to them is getting smaller. Even if you deal with one person when you initially place your business with these firms, before long you will be switched to someone else, or you may find that a lot of your interaction is with different people (one person for onboarding, another for financial planning, another for product implementation) and that you only get one meeting per year with your designated adviser. You may find that getting through to a real person gets more difficult and you might even be offered access to an online platform for some tasks. This will be sold as a benefit but it’s really about cutting the time spent on you.
We already operate under the client focused model. Nobody is acquiring us (we’re not big enough to acquire) and we’re not acquiring anyone (we don’t believe in buying clients). This means you will always be important to us.
Solvency
Some investors believe that their money will be safer if they invest through a larger firm – this isn’t the case. We don’t operate a client account so we never hold your money. If we arrange an investment for you (either directly or through a pension) the funds go directly from your bank account to the product provider. Our firm is subject to the same solvency requirements which larger firms are subject to but this is only to ensure continuity of service for consumers – counterparty risk is with the company that provides the product and we carry out an assessment of the solvency of our product providers each year. In the event that Highfield Financial Planning became insolvent your investment would be unaffected. Just like larger firms, we are members of the Investor Compensation Scheme operated by the Investor Compensation Company Ltd (ICCL) and we are also members of the Brokers Ireland Clients’ Compensation and Membership Benefits Scheme (BIC).
So to summarise, we’re more qualified, we don’t have a large machine which needs to be fed, you’re more important to us and us being smaller doesn’t matter, in fact it’s a plus.
While big may appear better, it is an undeniable fact that the further removed you as a client are from the owner of an advice firm, the lower the accountability and the quality of client outcomes will be.
