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Home > Regulation > RDR News & Analysis

By Bruce Tang | Published Aug 28, 2012

Execution-only: friend or foe?

It seems that with each new week comes the announcement of some company launching a new non-advised, execution-only service. This raises the question: will execution-only compete with IFA business, complement it, or fall somewhere in the middle?

Whether these respective services will compete with each other or work co-dependently is not as simple a question to answer as one might think. The Retail Distribution Review will come into force within the coming months and this will greatly change the way execution-only services and IFA businesses will operate and co-operate. There are many ways in which this may happen.

Customers could reject advisers on the premise that their fees may be too high or that investors may not have enough money to pay for advice. Some advisers may subsequently choose to boost their execution-only services in a bid to keep investors on board. The RDR may then lead to an increase in the competitiveness of execution-only services, potentially leading towards a decline in interest in financial advisers.

We could also see the complete opposite effect: A surge in interest in execution-only services may lead to certain investors having to seek further advice, specific to their finances. This will lead to the strengthening of the bond between both types of service and enhance their inter-dependency.

Alan Lakey, partner at Highclere Financial Services, said there is no real answer to whether face-to-face and execution-only will compete with or complement each other.

He said: “My personal view is that people must have the freedom to choose rather than being forced into a choosing one type over another.”

He added that execution-only services only helps implement predetermined choices, which is one of the reasons they are relatively cheaper, quicker and more appealing to busier people.

IFA businesses on the other hand allow a holistic view. Mr Lakey gives one example of a customer who sought particular advice with an IFA business but left with additional advice on other investments due to the fact that there’s a stronger, comprehensive approach compared to that of execution-only services.

Mr. Lakey added that there is no shortcut to financial advice and that there is a need for a holistic view, customers cannot get a detailed examination without regular and personal exchanges.

Jason Hollands, managing director at Bestinvest, disagrees.

He said: “It’s unnecessary to pay for advice you don’t need or want. Some people need advice if their accounts are more complicated, other people know what they want to achieve.”

Instead, Mr. Hollands argued that both are on different levels of business and are therefore complimentary, giving an instance of one long-standing client only on execution-only services. Over time, the same customer achieved significant growth in their investment portfolio and in the end required financial advisers. This suggests that both services will inevitably cross over.

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