For once this year, let’s talk about a different Donald, just for a moment.
In the final series of US advertising agency drama Mad Men, Don Draper and his colleagues faced up to a new challenge for their industry: a structural change in their business model.
Buried among the show’s flashy scene setting and flights of fancy is, in the first episode of the series, a bit of unglamorous detail on costs and revenues. Asked by a slightly patronising academic how the firm billed its clients, a character notes that all were once charged via commission. Then a shift to a fee-based model began, meaning the split was now about 50/50.
The series is set in 1969.
The situation isn’t completely analogous with financial advisers’ own evolution of recent years – the shift wasn’t pushed onto the advertising industry, for one thing – but watching that episode when it aired in 2014 nonetheless brought with it a sense that financial services remained behind the times.
I don’t mean to resurrect the fees versus commission debate again here. The relevance of that discussion died a death long ago, despite Tracey McDermott’s short-lived suggestion of a Lazarus-like return for commission earlier this year.
Yet the Mad Men discussion came to mind last month when the regulator published a data bulletin on the shape of the retail advice sector. The figures served as a reminder that the advice industry and the regulator both remain in the middle of their own transitions.
There’s statistics in the release, published for the first time, on the split between fees and commission. It won’t come as much of a surprise to find that commission accounted for just 31 per cent of retail investment (RI) adviser revenue in 2015, down from 56 per cent in 2013.
By contrast, insurance and mortgage business is still dominated by commissions at 85 per cent, and 80 per cent of total business, respectively. The figures are a nice snapshot, but ultimately aren’t that insightful: RI business, at least, has moved on.
So, taking Don’s lead and trying to tell a more interesting story, I think it’s worth looking at the data from the perspective of the regulator. It is trying to give advisers more useful information than it has in the past. But while there are figures in the report which are more noteworthy than the fee split, the origin of some of these stats has underlined the tension between a changing regulator and a changing advice industry.
Sticking with the RI cohort, we’re shown how the average revenue per adviser barely changes as a firm expands. A business with two to five RIs has an average revenue of £116,500 per adviser, but this only rises to £124,000 for firms with more than 50 advisers.
There have been mutterings of a problem here, based on how the data is submitted to the FCA. Some advisers say their own attempts to report precise figures have been hampered by the regulator’s systems. Others may question exactly how revenues are broken down per staff member.
If accurate, these figures do raise some important questions for advisers over economies of scale and the apparent lack thereof. If not, the FCA is drawing mistaken conclusions about the industry.
Regardless, the underlying point is that the regulator is trying to engage more closely with the sector - and appears to be doing so with a more open mind than we've seen with other areas of financial services.
Like the professor in the US TV series, it may sometimes come off as condescending, or even inaccurate, but at the heart is an attempt to better understand how advisers work.
In some ways, this closer engagement is going to prove more frustrating than the previous arms-length approach – witness the hopes raised, and then largely dashed, by this year’s Financial Advice Market Review.
There are more opportunities ahead, though: the review of the FSCS levy and a potential review of the professional indemnity insurance market being two obvious examples.
Though a life of micro-management may not be ideal, it brings with it a chance for greater engagement from advisers. The regulator’s new ‘mission’, announced last month, was more of a ramble than a pointed critique. But it is further evidence that it is willing to listen, at last, to new ideas.
