PlatformsOct 1 2012

Advisers to step up DIY solutions for clients

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Less than 2,000 advisers across the country offer an execution-only service - the financial equivalent of DIY - to their clients, according to an annual study carried out by research firm CoreData.

This number is expected to increase, however. The CoreData report, entitled Execution-Only Platform Study 2012, suggests a further 3,425 advisers are scheduled to begin offering execution-only services to clients in the next two years.

Furthermore, the study shows that 70 per cent of those advisers who are yet to offer execution-only services via a platform, but plan to do so, expect to make this service available to new ‘non-advised’ customers.

CoreData’s study, which the firm says aims to deliver administration providers key insights into the shifting demands of advisers and comprises an array of empirical data that identifies developing trends in the market, is by no means the only source to have suggested a move towards DIY services.

The RDR has placed an increased burden on anyone seeking to offer financial advice. As a result, it has made advice more expensive for clients. If clients are unwilling to pay the extra cost, or the adviser disinclined to shoulder the extra regulation, DIY services may work out better for both of them. If clients are willing to pay the extra charges, however, they may need extra services like execution-only to make the cost of advice worthwhile.

CoreData Research UK principal Craig Phillips says: “Against a backdrop of new regulatory change and compounded by the challenge of would-be client reluctance in paying a true price for advice post-RDR, it all adds up to advisers seeking new income streams.

“Adding an execution-only service is not just about new sources of revenue, though. For 55 per cent of advisers planning to add these services their intention is to do so as a value-add for existing clients.”

A large proportion of advisers expecting to provide a transaction-only service (45 per cent) have not yet determined how they will charge clients for access to this facility, but 30 per cent plan to bring in some type of service charge to cover the cost of access. One in five advisers plan to charge an annual flat fee. What is notable, however, is that almost none plan to offer this service for free.

Initially, execution-only may be an easier route for advisers who are already hooked on platforms already. Advisers who already offer execution-only services use platforms more often compared with advisers planning to offer this facility, the research reveals. However, the latter are not far behind, as they are more likely to use platforms two or three times a week than their counterparts.

Furthermore, advisers recognise that what they demand from a platform may not be exactly what their clients want. Unlike advisers using platforms as part of their advisory business, who according to the results from the Investment Adviser Platform 2012 survey place high importance on the range of tools and services offered by the platform, those in the execution-only space instead see simplicity and ease of use, as well as the ownership structure of a platform business, as more significant.

Execution-only: Veterans v newbies

Fees

Advisers who offer an execution-only service currently derive the largest proportion of their remuneration from ongoing and upfront fees. [veterans]

Until the RDR, advisers - including those planning an execution-only service - will typically have reaped most of their profit through initial and annual commission. [newbies]

Platform attitudes

Some 9.1 per cent of advisers who offer execution-only services have their own in-house platform. They are already knowledgeable about platforms, however, typically managing roughly two thirds of their business on a platform on some kind.

Some 10 per cent of those who are planning to offer execution-only are planning to build their own platform. They are already more likely to use a platform two to three times a week than peers who do not intended to offer execution-only services.

Product gripes

Advisers who offer an execution-only service derive slightly more of their income than average from Isas, Oeics, unit trusts and personal pensions. However, they remain most reluctant to offer clients access to cash Isas through an in-house platform in particular.

Self-invested personal pensions (Sipps) will be offered less by advisers planning on offering an execution-only platform - although execution-only investments are by definition self-invested. They will also restrict clients’ direct access to the bond market.

Survey snapshot

7.8% - Percentage of advisers who offer clients an execution-only service

13.7% - Percentage of advisers who intend to offer clients an execution-only service

21.5% - Total proportion of advisers who are projected to offer clients an execution-only service in the near future

70% - Percentage of advisers who are only planning to offer their upcoming execution-only services to clients who will not take advice

<50% - Percentage of advisers who are not charging clients for their execution-only services

45% - Percentage of advisers who plan to offer execution-only services but have not determined how they will charge their clients for it

The effects on...

...platforms

The typical adviser that offers execution-only services is slightly more satisfied with both their main and secondary platform than the average adviser is.

There is greater agreement among execution only advisers that levels of business will increase rather than decrease on the key platforms they are already using.

Advisers who either already offer or plan to offer execution only services and are stuck in a bad relationship with a platform are expected to write business through a smaller number of platforms than the industry average.

Those advisers who are satisfied with their platform provider and are optimistic about the level of business likely to be placed on their platform expect it to increase much more than the average adviser expects.

Execution-only advisers are largely encouraged to place more business with one platform over another by the cost, fees and charging structures.

...advice

Advisers who offer clients an execution-only service through a platform say their typical client’s most common need is to offer a “good and efficient service alongside investment advice and good returns”.

Those who do not offer execution-only services, but plan to, deem their clients to be most concerned about investment advice, pension advice and holistic financial planning.

Advisers planning to offer an execution-only platform see greater demand for pension advice among their clients than those who already offer this service.