We have heard it all before: the industry is changing, the world as we know it has ended, we must all adapt to survive.
But instead of stating these obvious facts, shouldn’t we ask ourselves the question: should we be worried or excited?
Three current topical changes in the industry that could be impacting on our businesses and leading to such opportunities can be summed up as follows:
• 1. The increasingly high cost of regulation;
• 2. Changes in the market for allocation ‘solutions’;
• 3. Transparency on fees.
On the surface these may not appear to be opportunities, but we need to look a little deeper.
Regulation
Any change to regulation comes at an implementation cost, but it is the ongoing costs that can hurt an advisory business. Firms are not simply challenged with streamlining costs but must implement full process reviews to incorporate the new regulatory changes.
In some cases this has become a challenge too far, with the result leading to the acquisition – and hence consolidation – of advisory firms into larger firms.
The ‘opportunity’ for firms is to ensure that they survive and provide a strong customer proposition that is valued, and become the different option in a market that is becoming like the high street – all the same names. Critical to success is picking the right partners for your business. For example, does your platform decrease your costs and improve your service proposition?
Allocation
There is no escaping it, passives are on the rise. A fundamental shift has occurred, centred on what firms invest in.
Before the RDR there were no passive funds in the top-10 selling funds of most platforms, today three trackers feature regularly: UK, US and Europe. Arguably the removal of commission has led to advisers voting with their clients’ money in buying developed market ‘beta’. Passives are forming the core of many client portfolios, with active products now being the satellite funds. Is there an ‘opportunity’ to review costs in line with value to ensure a stable return at a low cost for clients?
Fees
Fee transparency is, of course, a good thing. As a client I should be able to understand what I am paying my adviser for financial advice, what I am paying the fund manager for their investment expertise and what I am paying the platform for the service and IT they provide to streamline the administrative process and reporting of my portfolio.
The challenge – and hence the ‘opportunity’ – is how to explain these charges in plain English. It sounds simple, but as an industry we seem to have got it so wrong. Fee schedules now read like a list of additives in a can of soft drink; reading it, you become suspicious and hence do not trust that everything contained in the can is good for you. Those that lay out simple charges in plain English will win the trust of clients.
After all, it is their money, so why shouldn’t a client be engaged in a proactive way with their investments? Our experience shows an engaged client is a loyal client.
There are many more opportunities present for us all. The winners will be those who innovate to better the experience for the client and hence increase client loyalty.
Verona Smith is head of platform at Seven Investment Management
