Why advisers must wise up on D2C
Financial services is about to witness a new class of investor as banks and even advisers retreat from giving advice. The bank move is already well documented, but in advance of the RDR and its associated costs, advisers will also be finding ways to politely invite some of their less well-off clients not to be clients anymore.
Some clients may even be sounding their own retreat. Many will be receiving new terms of business and details of the service they will receive. They might not like what they are offered. Will they seek to negotiate? Will advisers dare negotiate back? Or does regulation and simple business economics preclude this? These are nervous times for businesses which haven’t completed all the steps to the new model yet. But whoever’s decision it is, we know for definite that many clients could find themselves without advisers or at least regular contact with them.
Some advisers and at least two banks, Barclays and HSBC, are hoping to retain clients and recruit new ones by providing DIY investment services – which is theoretically cheaper than offering them advice. The choice for advisers may revolve around offering a miniature direct-to-consumer (D2C) fund supermarket or something more concentrated that offers a few simple, carefully selected funds. Banks face a similar dilemma, though it is clearly the model of broker Hargreaves Lansdown that Barclays is eyeing.
The FSA has not even begun to consider how all sorts of commercial relationships could skew things for clients orphaned by the RDR
Alongside the adviser and bank battle for a share of the market, one of their key questions will be what these orphaned clients want. If they have used advisers in past, they will be used to receiving a substantial amount of guidance. Even where an adviser is aiming a DIY offering at, for example, younger family members of clients’ families, it is hardly an invitation for them to be sent to the investment Wild West.
Given the widespread availability of portfolio and risk assessment tools, investors are given much more direction than in the past. But will it be enough? Left to their own devices, will those investors increasingly become more like classic self-directed fund investors, who want the latest asset allocation, world market and fund views, in order to inform their decisions properly?
Will they succumb to the temptation of chasing the top of the market, or is the whole investment market moving to a more mature phase? In the next few years, a breakdown of the best-selling directly bought funds will make for interesting reading.
Of course, banks, advisers and established intermediaries don’t represent even the half of the internet ecosystem. The comparison sites want a piece of the action and offer what is known as ‘rich editorial content’ about all sorts of money management challenges. Publishing companies themselves are fighting for consumers’ time. Several of the national newspaper money sections offer links to advice or comparison services and lend their brand to those services. Such link-ups are not free of charge to the regulated firms behind them. Moneysavingexpert.co.uk is a phenomenon all on its own. Although it has been bought out by a comparison site, it must register astonishingly high on an index of sites that consumers trust. It makes a huge amount of money from links to various providers and comparison services, though it is adamant that such links do not bias its editorial.