SYDNEY, December 13, 2011 – Advisers concerned about servicing lower value clients under the proposed FoFA "opt-in" rules may be overlooking profitable alternatives to discarding or selling them. Having a clear strategy is important as these clients can make up a large proportion of many client books, says Russell Investments.
Historically, many advisers have serviced their lower balance clients through older, out-dated and expensive legacy products. This has typically been possible only through higher balance clients subsidising the cost of advice delivery. With transparent fee disclosure and opt-in for new clients, Russell says many advisers are considering selling or forsaking portions of their client books containing lower value clients, to enable them to demonstrate value, and retain the more profitable A and B grade client segments.
However Russell's Practice Development Manager, John Nolan, argues this need not be the case:
"Lower value clients represent a significant portion of some advisers? businesses, and while these clients may not be currently profitable, advisers should consider a 'move up' strategy before implementing the 'move out' approach. The cost of acquisition alone suggests that advisers should do everything they can to provide more services to lower value clients before considering alternatives. When clients are not interested in a broader service offering, advisers should look to reduce the cost of maintaining these client relationships," he said.
Mr Nolan says Russell has been in consultation with advisers to find FoFA-compliant solutions that would enable advisers to maintain relationships with clients who are not classified as high value, and unwilling to commit to a higher level of service.
"All the advisers I talk to want to do the right thing by their clients, but the relationship has to be a profitable one. If there's no junior adviser in the office to look after lower value clients and no other way to reduce the cost to serve, then naturally the focus should turn to the cost of delivery – specifically product fees."
Russell has seen increased interest in recent months around its SuperSolution Master Trust Private Division (Private Division) which provides an alternative option for managing low value clients in a post-FoFA environment.
Private Division offers advisers and their clients access to Russell's global investment expertise as well as administrative services including ongoing investor communications starting from 45 basis points (plus investor fee)*.
The primary benefit for advisers is that they can be freed up to service high value clients while still offering fee-for-service advice to lower value clients who request it.
Private Division offers a low cost, high quality, efficient superannuation solution focused principally on the needs of investors. Private Division's access to award winning investments and member services has made it the superannuation product of choice by some of Australia's largest employers.
"The introduction of FoFA has many advisers concerned about how they can fulfil their best interest duties to clients, while managing a profitable business. Before advisers take drastic action on a large and stable part of their client base, they should consider all the options available," Mr Nolan concluded.
Notes to editor
*45bps applies to the Russell Australian Cash Fund plus investor fee of $102.10pa.
The Russell Super Solution Master Trust (SSMT) provides member education tools which allow members to make informed decisions to help build their super savings. The tools include seminars, an online resource centre, webcasts and calculators. Members also have access to Russell's suite of expertly selected global fund managers and specialist investment resources.
About Russell Investments
Russell Investments is an independent, global financial services firm that provides strategic advice, investment solutions, implementation services and global performance benchmarks that are customized to meet the unique needs of institutional investors, financial advisors and individuals.
Celebrating its 75th anniversary in 2011, and 25 years in Australia, Russell has pioneered innovations that have come to define many of the practices that are standard in the investment world today, and has four decades of experience researching and selecting money managers globally.
Russell has about US$141 billion in assets under management (as of 9/30/11) and works with 2,300 institutional clients, 530 independent distribution partners and millions of individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2 trillion in assets under advisement (as of 12/31/2010) and traded $1.5 trillion last year through its implementation services business. Russell provides leading administration and member services to over 220,000 individuals through its Australian Member Administration Centre. The Russell Global Indexes calculate over 50,000 benchmarks daily covering 63 countries and more than 10,000 securities.
Founded in 1936, Russell is headquartered in Seattle, Washington, USA and has offices in Amsterdam, Auckland, Chicago, London, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit www.russell.com/au
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 ("RIM"). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. This information has been compiled from sources considered to be reliable, but is not guaranteed. Past performance is not a reliable indicator of future performance. Any potential investor should consider the latest Product Disclosure Statement ("PDS") in deciding whether to acquire, or to continue to hold, an investment in any Russell product. The PDS can be obtained by visiting www.russell.com.au or by phoning (02) 9229 5111. RIM is part of Russell Investments ("Russell"). Russell or its associates, officers or employees may have interests in the financial products referred to in this information by acting in various roles including broker or adviser, and may receive fees, brokerage or commissions for acting in these capacities. In addition, Russell or its associates, officers or employees may buy or sell the financial products as principal or agent.
Copyright 2011 Russell Investments. All rights reserved.
MKT/4268/1111
If you would like more
information about a press release
please contact:
SUSIE LAMBERT
Honner Media
susie@honnermedia.com.au
02 8248 3747
CRAIG MORRIS
Marketing Director, Australasia
Russell Investments
cmorris@russell.com
02 9229 5120
