CPD  

What the future of advice might look like

  • To understand the background to development of robo-advice.
  • To learn how a hybrid approach has worked in the US.
  • To gain an understanding of how hybrid advice can work in UK firms.
CPD
Approx.30min
What the future of advice might look like

Like ‘Remain’ or ‘Leave’, the ‘Robo’ v ‘Traditional’ advice debate has raged.

On the ballot paper last June however there were only two options. But as an industry we have the option of a third way between robo and traditiona: in other words, a hybrid model.

This way we believe is the sustainable future of investment advice and in this article I want to set out the reasons why.

Manual investment advice hurts IFA firm value 

As you can see from the chart below, over the past five years IFA firms have serviced increasingly older and wealthier clients.

This analysis comes from anonymised, aggregated Dynamic Planner data and is a snapshot from 2011 and 2016.

You can see that the average client age has risen from 51 to 56 and that firms have not been replacing younger clients.

In fact, the average wealth for clients advised under 45 in 2011 was £27,000 and this has almost doubled to £45,000 by 2016. 

As is well known the process of investment advice is often slow and manual. Analysis we commissioned from the F&TRC showed that an investment review with recommendations takes more than six hours of adviser and administrator time, with almost half of this devoted to data gathering, from platforms, providers and the client.

This is not surprising when you think about the client demographic and the fact that they are likely to hold multiple investments in multiple places. 

This problem is thrown into even sharper relief when lower value clients and cases are involved.

According to a series of client interviews we completed last year even advising on an Isa takes several hours of both adviser and administrator time. If you apply standard fee rates most cases are marginal to loss making on a standalone basis.

As a result most advisers focus on wealthier customers who (by definition) are looking for advice rather than to do it themselves.

The self-directed, DIY segment is well catered for in our industry and the typical IFA proposition not strong in execution only.

 

The big challenge for advisers and for the industry is the large number of clients who need advice to make an investment decision as they are not engaged or confident enough to do it themselves and where their case size is smaller. 

This is creating two very real problems for firms looking to build their business value over the longer term: 

1) A growing realisation that wealthy clients often start small and firms are increasingly unable to grow their clients from scratch as they once did. 

2) That once that wealth is inherited it is increasingly unlikely that the firm will have a relationship with the younger heirs and the result is they may lose the business income stream.