What are these then?
1) Robo advice
Robo-advisers are digital platforms that provide automated, algorithm-driven financial planning services with limited or no human supervision.
Typically, the Robo-adviser uses an online portal and survey to collect information from clients about their financial situation and future goals. They then use this data to offer advice and investment options for the clients assets.
Robo advice is a threat, as money management has become a commodity. Tougher disclosure rules, new technology, expanding public access to news and the availability of low-cost investment choices is starting to dull any edge professionals once enjoyed.
Inexpensive web-based asset allocation has accelerated this commoditisation. Robo advice when mainstream will address not only new millennial investors, for whom investing is just another online experience, but also retiring baby boomers, for whom reducing costs is the most obvious way to preserve capital.
As a result, many advisers may have to rethink their value propositions and upgrade their practices to prosper in the future against this competition.
2) Removal of trail
The removal of trail commission proposed by the regulator in the recent FCA Asset management market study could hit the value of some advice businesses and see some experience financial difficulties.
Clients want to see you, not someone new. The challenge for many advisers will be how do they monetise and then exit the business they have built upIf firms are operating on slim margins already and they lose an essential element of their current revenue, then it is not inconceivable that this could be the catalyst that pushes some businesses to the point of failure.
It will also be a major source of stress for many more. It is essential firms have their plans in place before the FCA acts to reduce any potential impact.
3) Future of platforms
The FCA Asset management market study also announced that the regulator will undertake a review to determine if platforms enable retail investors to access investment products that offer value for money.
Despite the price war and subsequent reductions on platform charging in recent years, the FCA wants to look more closely at the impact on platforms on competition and value for money for consumers and, it is also suggested, a greater role for them in achieving these aims.
It will also explore how 'direct to consumer' and intermediated investment platforms compete to win new and retain existing customers. This makes your right choice of platform even more important as is the due diligence you undertook to reach that decision.
4) Advice model of the future
Figures from Legg Mason, which polled more than 15,000 investors globally, found that 76 per cent of UK investors would refuse to pay the typical hourly fee of £150 for financial advice.
On a positive note, the survey indicates that younger people are happier to pay for advice than their older counterparts. Only 17 per cent of millennials rule out paying for financial advice and nearly 20 percent are happy to pay a rate of £150 per hour or above.
Advisers must now ensure their proposition, advice structure and charging models are fit for the future.
5) Mifid II
Mifid was introduced in 2007 to harmonise securities trading and financial services legislation across the European Economic Area. It was agreed that Mifid would be reviewed after three years, the result is a new tranche of legislation, dubbed Mifid II, currently scheduled to be implemented in January 2018.
The key issues for advisers surround:
• Tighter rules on complex products.
• Target markets.
• Client conversations.
• Financial reporting and complaints.
• Inducements and remuneration.
• Investment governance and research.
6) The end game
You've spent your career building your advisory practice from the ground up. You have a database full of loyal, regular clients and the business is still growing. You're starting to think about retiring from the business and either selling it or passing it on to a family member or colleague.
There's only one problem: you are inextricably entwined in the business. Clients want to see you, not someone new. The challenge for many advisers will be how do they monetise and then exit the business they have built up.
This must and should be done well in advance of any sale. Tactics such as a marketing database, effective segmentation and succession planning are vital to ensure you receive the value you want from the business you have built.
These six issues are vital for every advisory business and you need a plan to ensure you are ready for the future of advice.
John Joe McGinley is founder of Glassagh Consulting
