Regulation has forced advisers to demonstrate value


Advisers must demonstrate their value propositions more now than ever before, an investment analyst has claimed.

Garrett Harbron, investment analyst for Vanguard Investment Strategies Group, said advisers were facing more pressure from regulators, robo-advice and clients to demonstrate their worth than ever.

He said: "It is coming from three sources. The first and probably the top of mind for many people is regulation. We have seen a lot of regulation coming in over the past few years, such as the Retail Distribution Review, Mifid I and Mifid II, which have made a big difference in how advisers are compensated.

"Along with this, the FCA has taken a good hard look at value for money, so it is clear regulators are paying more attention to this."

The second pressure point, he said, was the low return environment we are in. "Low returns make fees more visible", he said, which means clients are paying more attention to what they are paying their adviser. 

The final thing bringing pressure to bear is robo-advice. Both in the US and in the UK, he said many advisers were embracing the advance of robo-advice, although some were still resistant to the trend.

Mr Harbron told FTAdviser: "The advisers who are the most successful and those who will continue to be most successful in the future are those who are embracing it.

"Those who are trying to fight the trend are fighting a losing battle. If you look at one of the biggest robo-advisers in the UK, they charge 45 basis points for asset allocation, portfolio construction and rebalancing.

"That's where most advisers have staked their value around those three functions and it is hard to see if advisers can charge 1 per cent or more a year when the going rate is 45 basis points."

Therefore, advisers will need to go far beyond portfolio construction. For Mr Harbron, there are seven ways an adviser can demonstrate value, particularly when it comes to behavioural coaching.

"Not only is it the part where advisers can add the most value", he noted, "but it is the one least likely to be taken over by an algorithm. An algorithm cannot replicate human relationships."

Building trust, helping to remind clients of the long-term financial plan, communicating with empathy and understanding can create that added value for advisers.

For more hints and tips, view the video above.