Making money work
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For the practice seeking to meet the needs of the private client the addition of an investment services department can bring great benefits. But how do you make it work?
Choosing the right person to run the department is a critical starting point. Not only must he or she be able to set up the necessary systems to which clients will be exposed but they must also earn the respect and trust of the partners and fee earners who may be supplying the bulk of the clients.
Ensuring the first client relationships run smoothly is crucial. The investment and settlement systems must work. These interface directly with the client and will colour their perception of the new arrangements. If they fail, any trust built up between the practice and investment department will evaporate, along with partners' willingness to risk recommending their clients to the service.
Once the adviser is happy with the systems, the partners and fee earners must be similarly convinced. Depending on the size of the firm this may be effected with internal seminars, a regular newsletter or meetings over lunch.
The adviser's investment style must fit in with the firm's philosophy. The arrangement will fail where the adviser is too aggressive, switching holdings at every turn of the economic cycle, when clients have come to expect a more cautious approach.
Clients and partners may also become wary when it seems that the answer to every investment problem lies in an arcane insurance-based product.
On the other hand a practice with a wealthy, sophisticated client base may need an adviser who can recommend a racier style of investment portfolio than the traditional approach might suggest.
It is also important for the adviser to fit in to the firm's culture. The mutual trust and respect arising will promote a joint approach to servicing the client base that will be complementary.
Client visits by the investment department will be another manifestation of the practice offering a personal service. Such visits do not have to be time-costed and help cement client relations.
It will be important for the firm to recognise that despite much hot air on the subject of dematerialisation, there will be a lot of paper in the finance department.
The right which the Law Society has won for self-regulation has been at the cost of an inscrutable level of self-vigilance with a little help from the Law Society monitoring unit. Partners and fee earners (and not least the investment department) may become frustrated at the degree of form filling at every stage of the investment process, particularly when setting up.
Setting up systems and fighting the paper war will mean that the practice will have to bear the initial set-up costs and it is generally accepted that the finance department cannot expect to achieve a profit until the third year.
Staff will have to be engaged to run the in-house nominee, PEPs and settlement and will need to be of the highest calibre the firm can afford.
Is there a reward for the consequent increase in practice costs? Clients will almost certainly enjoy a more comprehensive service from the practice. Partners and fee earners will have an in-house sounding board in approaching clients' financial problems, while clients coming directly to the investment department may be introduced to the other services which the practice offers. Members of the investment department may have come from different corporate and management structures and may bring a new management perspective to the firm.
Setting up an investment department will require much work and patience, but if the chemistry works, clients, members of the firm and the bottom line should benefit.