Lawrence Cook, director of marketing and business development at Thesis Asset Management – which was once owned by and is still linked to south-east law firm Thomas Eggar – outlines their experience of joint ventures with solicitors
Getting the right mix: solicitors and financial advisers can make a potent combination
Since alternative business structures (ABS) were first announced in the Legal Services Act 2007, there has been much talk about them, but perhaps less action than might have been expected. Here, we share our experience of ABS, focusing on financial services delivery to clients. It is not all plain sailing, but there are clear dos and don’ts.
The old model: ‘the reciprocation hamster wheel’
Knowing who to trust will always be very important in professional circles. Learning from experience to whom to refer work outside of the lawyer’s remit takes time, and once a trusted professional has successfully handled a number of your clients, it is a relationship you want to maintain.
However, too much business referred to one investment manager or IFA, where little formal due diligence has been carried out, has the potential to leave the firm exposed. Alternatively, the scatter-gun approach of referring clients to many IFAs about whom little is known is equally, if not more, risky.
A new model: joint venture (JV)
At Thesis Asset Management, we have gained considerable experience in devising, creating and successfully running financial services JVs with firms of solicitors. One type of ABS, the appointed representative model, is gaining in popularity. Here are some of the benefits:
- Ensures clients get a consistent reliable quality service;
- Reduces the risk of clients being referred to a third party where little or no due diligence has been carried out;
- Provides additional fee income;
- Provides long-term embedded value;
- Long-term financial interest helps to retain talent within the business; and
- Helps identify more legal work.
That is quite a list of benefits, although not all of them were obvious at the outset, and a lot have emerged over time.
Additional fee income can be facilitated by setting up a separate business wholly owned by the solicitor that acts as an appointed representative (AR) to an investment manager. The AR acts as referrer to its JV partner, ensuring that regulatory requirements are met.
A fee is paid to the AR by the investment manager following each successful investment. There are regulatory hurdles to be successfully encountered and guidance is necessary to ensure that this can be completed without falling at the first.
Identifying more legal work was a benefit not initially considered as a reason for JV, but it is now an increasingly valuable benefit. Many solicitors have a jealous regard for those other professions that have a natural annual cycle with clients, providing opportunity to understand what other needs have arisen or were previously perhaps not fully disclosed.
Solicitors are finding that the discipline of regular reviews required for investment business is giving them the time to speak to clients at an appropriate moment and uncover further needs. Having a financial services JV means that the client is expecting to have a regular review, giving the firm every chance to understand changes in client circumstances and reduce the risk of the client considering an alternative firm for their needs.
Once the legal entity of the JV is created, the policies and procedures put in place can make a big difference. We have learnt some important dos and don’ts from our experience of the process.
A successful JV: The dos
- Have a formal written process for making referrals, which will ensure a good audit trail;
- Chat with the JV partner when making a referral to talk through the soft issues, ensuring the client is appropriately handled;
- Ensure fee-earners are kept informed after the referral – this will provide encouragement to do more;
- Use the experience of your JV partner to think about a broader range of client needs, which may lead to more effective client engagement;
- Put in place a contact management programme ensuring key fee-earners and the JV partner representatives meet regularly with a formal agenda;
- Use your quarterly JV board meeting to look for improvements; and
- Consider up-skilling fee-earners in their client engagement skills. Not all are naturals at developing conversations outside of their specialist area.
The don’ts
- It’s not just about private client work. Other disciplines can gain greatly by being involved; and
- Don’t try to feed too many mouths by having too many partner firms to the JV. This is likely to result in expectations not being met;
- Relying on an informal engagement process between fee-earners and JV partners is a recipe for disappointment; and
- Don’t make it complex. This will reduce internal engagement.
Alternative business structures have great potential to deliver a more effective service to clients and deliver value to solicitors. We expect considerable growth and success for those firms that can grasp this opportunity.
