What’s the future for financial advice?

I’ll cut to the chase. I have been calling for a ban on commission on the sale of investment products for longer than I can remember.

The arguments for a ban are well worn, and will be familiar to everyone at The Adviser Lounge, so I won’t go over them again here.

But I will say this: I’m glad to see the days of commission have finally been relegated to the dustbin of history.

This doesn’t mean, of course, that everything is suddenly fine and dandy. In fact, there is currently a great deal of confusion in the market — for both consumers and IFAs.

In the past, consumers would have visited their local IFA and chosen to pay either a fee or commission. Now they have the simple choice to either pay the fee or do it themselves.

Thing is, it’s not really that simple a choice.

Many IFAs are also struggling to adjust to the post-RDR advice wasteland. A sizeable chunk have reacted by migrating upwards, focusing on so-called high net worth individuals.

They’ve effectively morphed into wealth managers overnight.

But while focusing on HNWs is all well and good, I am not convinced that there are enough of these people to go around to sustain the number of IFAs that are now focusing on this area of the market.

Per head of population, the UK has fewer than a fifth of the millionaires that are in the US.

At some point soon many IFAs are going to find out that their plan to migrate upwards will be a lot more challenging than they had planned for. It could even cost them their business.

There’s another threat to IFAs. Big networks and fund management groups like Fidelity are assessing how they, too, can camp in this space.

They believe that by offering ‘guidance’ rather than advice they can take the custom that traditionally would have gone to the IFA.

The danger here, though, is less the moment of making an investment decision and more in the ongoing review of that decision.

While ‘guidance’ may help an individual to make a buying decision, after that it leaves them high and dry. The emphasis is on the private investor to review and take things forward.

People, of course, are notoriously bad at reviewing. As an active private investor myself, I have taken my eye off the ball on more than one occasion — and have been burned as a result.

Guidance can shift product, for sure, but it will never have the same result that a good ongoing relationship between a client and IFA can.

At its best, the relationship between a client and IFA is not just focused on long-term goals but is reactive enough to tack a portfolio in another direction if necessary. And that’s something guidance just can’t do.

But again we return to the central problem: how to get affordable advice to consumers (specifically the upper middle classes, for want of a better term) and not just the HNWs?

The answer is simple: offer a superb service, which justifies the fee, and also offer a choice of fee structures, which facilitates payment of the fee.

Ultimately, of course, good IFAs will always manage to show that they are worth their weight in investment gold. And if they can do that, they’ve got nothing to worry about.

Over to you.

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11 thoughts on “What’s the future for financial advice?

  • Good article. But frankly, Commission is an easy target, and one of the past.

    I would question the role of the Investment Press in all of this. For the sake of easy articles, we have seen week in week out of ‘Investment Porn’. Buy this fund, sell these shares.

    None of it really meaningful or helpful, and none of it allowing the public to see the scams from the merely expensive. Let us ne clear. The biggest losses experienced have been where the underlying investment was, in effect, a scam. Arch Cru. Shepherds. Keydata. Brazilian Woodlands. The list goes on. I spoke out. Other IFA’s spoke out. The FSA did nothing. The Press did nothing. Why? Perhaps advertising revenue? perhaps a fear of biting the hand that fed you?.

    This is where the Investment Press has failed. Too dependent on Adverts to offend the ‘Noise’, and too afraid to hold up a mirror and call the Emperor on his New Clothes. The phrase ‘It’s different this time’ should have the press all over the firm in question.

    I wonder how many scams would have lived if the financial press had taken on this role?

    Everywhere I note Journalists questioning commission. Fair enough. But what about Financial Press being dependent on the drug of Advertising revenue? is that so very different?

    Reply
  • I agree that every adviser you read about is chasing the higher net worth clients.

    I disagree, however, that there are too few well off people to support this when you think how few advisers there actually are.

    Dovetails nicely with Phil Young’s piece about differentiation.

    Reply
    • On that point, Damian, I tend to agree with Julian, from the point of view that there aren’t enough people with investable assets over £200k plus so support around 20, 000 advisers. Not to say that’s required for them to survive though. One for another article perhaps.

      Reply
  • Great Article. However I’ve got a different take on this…

    I agree that the removal of commission is overwhelmingly positive and is slowly moving us towards being perceived as a profession and not an industry.

    I also agree that offering a “fantastic service for a price which justifies the fee” is the ultimate aim for any professional financial planner.

    However there is a commercial reality around being able to provide this to the mass affluent market.

    The judgement we all need to make as advisers is, for the benefit and protection of our existing clients as well as our future livelihoods, is can we how best we can run our businesses ethically, fairly but also profitably. Many advisers have decided that this is dealing with wealthier clients.

    Whilst the networks and larger players are making moves in the mass affluent market the key factor is how technology will change the way we save, invest and make provisions for our future.

    The ‘game changer’ isn’t the networks or investment providers getting involved….it’s the fact that, in a couple of years time we all may be able to have a ‘virtual’ financial planner….or perhaps I’ve been reading too much Sci Fi!

    Reply
  • I recently had a conversation with some Citywire people about how they thought they might cope with the cashflow issues now being dealt with by advisers.
    What kind of industry media would we have if it had to be bought by it’s readers/consumers at an economic price without advertising revenue to subsidise it ?
    Do journalists have the ability to create or demonstrate value in their work that would be considered worth paying for ?
    I think we all know from the dreadful quality and content of our industry media that without advertising revenue it would not even make it as fish and chip paper.
    The ongoing debate about the size of the market for advice is really quite depressing. The market is huge and the demand for financial advice has never been higher.
    The technology and tools now available in wraps and platforms on a free to air basis is mind boggling and allows advice to be delivered efficiently ,effectively and profitably to every socio economic group.
    The current debate is evaluating the future based soley on the past commission based remuneration process and sadly demonstrates a pretty depressing level of imagination and business ability amongst advisers.
    There was a time when indemnity commission did not exist and an adviser income had to be built up on an accruel basis , which for those who are too young to remember was an gradual accumulation of small monthly sums.
    The same process will work just as well today when smaller charges will need to be applied to make our services attractive. The need to demonstrate value on an ongoing basis to retain income will hugely improve the quality of advice and the trust we so desperately need to regain .
    Yes you will need to invest in yourself as do most other business people but the rewards will be so exciting and profitable.
    Lets show the world how good we are guys and how well we can react to change.

    Reply
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  • Great Article. However I’ve got a different take on this…

    I agree that the removal of commission is overwhelmingly positive and is slowly moving us towards being perceived as a profession and not an industry.

    I also agree that offering a “fantastic service for a price which justifies the fee” is the ultimate aim for any professional financial planner.

    However there is a commercial reality around being able to provide this to the mass affluent market.

    The judgement we all need to make as advisers is, for the benefit and protection of our existing clients as well as our future livelihoods, is can we how best we can run our businesses ethically, fairly but also profitably. Many advisers have decided that this is dealing with wealthier clients.

    Whilst the networks and larger players are making moves in the mass affluent market the key factor is how technology will change the way we save, invest and make provisions for our future.

    The ‘game changer’ isn’t the networks or investment providers getting involved….it’s the fact that, in a couple of years time we all may be able to have a ‘virtual’ financial planner….or perhaps I’ve been reading too much Sci Fi!

    Reply
  • Good article. But frankly, Commission is an easy target, and one of the past.

    I would question the role of the Investment Press in all of this. For the sake of easy articles, we have seen week in week out of ‘Investment Porn’. Buy this fund, sell these shares.

    None of it really meaningful or helpful, and none of it allowing the public to see the scams from the merely expensive. Let us ne clear. The biggest losses experienced have been where the underlying investment was, in effect, a scam. Arch Cru. Shepherds. Keydata. Brazilian Woodlands. The list goes on. I spoke out. Other IFA’s spoke out. The FSA did nothing. The Press did nothing. Why? Perhaps advertising revenue? perhaps a fear of biting the hand that fed you?.

    This is where the Investment Press has failed. Too dependent on Adverts to offend the ‘Noise’, and too afraid to hold up a mirror and call the Emperor on his New Clothes. The phrase ‘It’s different this time’ should have the press all over the firm in question.

    I wonder how many scams would have lived if the financial press had taken on this role?

    Everywhere I note Journalists questioning commission. Fair enough. But what about Financial Press being dependent on the drug of Advertising revenue? is that so very different?

    Reply
  • I agree that every adviser you read about is chasing the higher net worth clients.

    I disagree, however, that there are too few well off people to support this when you think how few advisers there actually are.

    Dovetails nicely with Phil Young’s piece about differentiation.

    Reply
    • On that point, Damian, I tend to agree with Julian, from the point of view that there aren’t enough people with investable assets over £200k plus so support around 20, 000 advisers. Not to say that’s required for them to survive though. One for another article perhaps.

      Reply
  • I recently had a conversation with some Citywire people about how they thought they might cope with the cashflow issues now being dealt with by advisers.
    What kind of industry media would we have if it had to be bought by it’s readers/consumers at an economic price without advertising revenue to subsidise it ?
    Do journalists have the ability to create or demonstrate value in their work that would be considered worth paying for ?
    I think we all know from the dreadful quality and content of our industry media that without advertising revenue it would not even make it as fish and chip paper.
    The ongoing debate about the size of the market for advice is really quite depressing. The market is huge and the demand for financial advice has never been higher.
    The technology and tools now available in wraps and platforms on a free to air basis is mind boggling and allows advice to be delivered efficiently ,effectively and profitably to every socio economic group.
    The current debate is evaluating the future based soley on the past commission based remuneration process and sadly demonstrates a pretty depressing level of imagination and business ability amongst advisers.
    There was a time when indemnity commission did not exist and an adviser income had to be built up on an accruel basis , which for those who are too young to remember was an gradual accumulation of small monthly sums.
    The same process will work just as well today when smaller charges will need to be applied to make our services attractive. The need to demonstrate value on an ongoing basis to retain income will hugely improve the quality of advice and the trust we so desperately need to regain .
    Yes you will need to invest in yourself as do most other business people but the rewards will be so exciting and profitable.
    Lets show the world how good we are guys and how well we can react to change.

    Reply

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