Nick French, CDO at Blackfinch, talks to IFA Magazine’s Brandon Russell about the group’s new Tailored Portfolio Service (TPS). In this Q&A, French explains how and why the TPS is set to help advisers achieve a higher degree of customisation for their centralised investment proposition, to help to create their firm’s own-brand collateral and ultimately add value by capping costs to clients through efficiencies.
IFAM: What is the Blackfinch TPS?
NF: “The Blackfinch Tailored Portfolio Service provides advisers with their own-brand range of diversified, managed investment portfolios, curated to meet their individual firm’s and clients’ needs, delivered using our resources, thereby helping firms to meet their Consumer Duty requirements too.
“In the simplistic sense, it’s white labelled MPS. However, what’s different about our TPS is that it is trying to find a customised solution for advisers to reclaim more value into their business whilst improving client outcomes.”
IFAM: Do you believe that using the TPS can improve adviser firms’ valuations through creating efficiencies? And, if so, how?
NF: It is becoming increasingly apparent that there is a growing demand in the marketplace for adviser firms to own more of their investment proposition so they can tailor it to the values, beliefs, requirements, and cultures of their particular client base. There are many benefits of adopting TPS solutions in an advice firm, including potential for improved operational efficiency, reduced costs, and better client outcomes.
“In essence, the three hardest things to do in financial services are, attracting new clients, keeping clients happy for extended periods of time and keeping clear of the regulators.
“Advisers are generally effective at client acquisition and they often advise the same families for years and sometimes decades. If we forget the noisy bits from the old days, there are currently around c.24,000 authorised advisers, and the majority are running compliant, efficient businesses.
“If we assume those three things are the most valuable things in financial services, that should be reflected in the valuations of those businesses. But that is not the case. The problem is when you look at the valuation of adviser businesses in the bigger picture of the value-chain of advice. They’re the least valuable part of the financial services ‘ecosystem’, where valuations are derived from a multiplier of their revenue. Advisers are less aware of the valuation of businesses like platforms. So, platforms have been valued between 3-5x revenue, sometimes more. We have seen some that were recently bought by large companies sold for tens of millions of pounds.
“Yet, where did those assets come from? They came from the clients of financial advisers. Then we start looking at different investment groups valuing anywhere between 10-16x higher, again, where is the asset flow coming from, it is from the clients of financial advisers. I’d argue that seems a little bit of mismatch. Advisers take most of the risk in the value chain of advice.
“In terms of valuations of these businesses, what potentially gets looked at next is the risk factor. For example, if we look at defined benefit transfers and the challenges they posed, all the risk sits with the adviser which meant PI costs went un and essentially some businesses become unsellable.
“If an adviser has a significant amount of defined benefit books in their business, people don’t want to acquire these. And yet, when we consider the impact of defined benefit on platforms, they just got more assets which increased their multiple. In essence, we need to recapture value and so we talk to advisers about having their own range of solutions that map to their centralised investment proposition.
“We try to encourage advisers to think more strategically about their businesses. Large businesses can be more adept at identifying what they want to achieve and how they are going to go about doing it. Our TPS allows firms to create their own range of investment portfolios targeting their client’s needs. This means they can reduce the number of different discretionary fund managers they need into a simpler centralised investment proposition, which puts them in a stronger position to negotiate on fees as well as identifying efficiencies for the business. If costs come down, and growth potential from a great offering goes up, then revenue opportunities increase – and the multiplier up to valuation goes with it.
“As an industry, we must be clear in laying out what we’ll do for firms to help them be as efficient as they can possibly be – including things like producing their reporting requirements for them with additional ‘value add’ communications included. It’s about doing really intentional, deliberate due diligence on the companies they want to work with. We talk to companies, see what people are trying to achieve. What you’ll find is, across the value-chain of advice, people are prepared to potentially negotiate on fees and additional services. We’re trying to get people to think more about bringing that value back into the business, bringing pricing points down and ultimately bring the costs down for the clients.
“If you then think about efficiency savings. Firms may have up to ten different solutions that are really time intensive, and broadly an inefficient use of time. If a business could save, for example, £50,000 on costs just by one action alone. then the revenue multiplier means they’ve added maybe £350,000 to their firm’s valuation. Choosing to reduce the number of providers to a CIP can significantly improve their operational efficiency?”
IFAM: What about the benefits of a TPS for advisers’ clients? How would you summarise those?
NF: “By integrating a streamlined product offering, tailoring a firm-level range of portfolios allows for a truly unique and incredibly valuable offering to clients which directly addresses their needs. Ultimately, we’re encouraging advisers to take back control, to tell product providers what they want. That way we can work together to build the kinds of solutions that suit the adviser’s client base.
“Advisers know what their clients want better than we do. This is not us presenting ‘here’s our great fund?’. It’s about advisers telling us exactly what they want. For example, an adviser might tell us that they use a risk profiling planner and this is how they run the model. They believe that there is a combination of active or passive and they’d like us to do this. They want their investment partner to run strictly to that risk profile, or to have a tolerance level of X or Y. They want us to make decisions within the asset allocation within the sector. Advisers might say they want to rebalance annually or not rebalance at all.
“What we then build is a solution in keeping with the values of the adviser and their clients. We take all those cost saving benefits and help make the advice business more and more efficient.
“It’s win win: clients have a more cost-effective solution that helps demonstrate the value of the advice, and at the same time firms can secure greater revenue opportunities resulting in improved valuations.
“Ultimately, we are trying to find a situation where everybody wins, and we want to make sure that advisers and their clients thrive. That’s not at the expense of each other, but because of each other. That’s our focus and I believe it’s a very powerful concept that really delivers on all fronts.”
About Nick French
Nick has over 25 years’ of financial services experience, having held roles at Zurich, Skandia Life and Russell Investments, where he spent 13 years – including three as Managing Director of UK Wealth Management. Most recently, Nick was at Marlborough Group, where he was Head of Adviser Solutions and CEO of the Select Platform for financial advisers. Nick has a Master’s in History from Sheffield University and his professional qualifications include the Fellowship of the Chartered Management Institute.
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