Investments 

Medium is as crucial as message

Medium is as crucial as message

A perfect storm has descended on advice companies at the start of 2019: the Mifid II requirement to assess ongoing suitability at least once in every 12 months and the need to disclose charges in pounds direct to the client – both right at the time when many client portfolio values have fallen. 

For many businesses this pain is more acute than others. For companies who have focused their proposition on risk-based financial planning, it is clear where their value lies: helping the client articulate and achieve their objectives at a level of risk that is right for them.

For companies focusing on the financial product as an end in itself, the current conflation of circumstances is more difficult. If there is no plan then the annual report is essentially a valuation statement, and perhaps some generic market and fund commentary.

But the client can get these from their platforms or providers – so what role is the adviser playing and why would the client pay hundreds and probably thousands of pounds more a year?

Client services must change

While the industry has successfully moved from commission to fees over the past five years, many businesses may not have moved their proposition as far as they need to from providing financial products to providing financial planning.

Mifid II could prove more of a catalyst to change in our industry than the Retail Distribution Review ever has.

At the time of writing, the UK and a number of global markets were down or flat year-on-year, while disclosure requirements can make it look as though charges have gone up.

Add to that mandatory charge disclosures direct to the client from platforms and, if relevant, 10 per cent loss notices, and the potential for questions to be raised in the client’s mind around the value they are getting from their financial adviser is substantial.

RDR required a change to the way that companies charge and most are now in a good place: profitable with good levels of recurring income. What Mifid II does, however, is introduce a need to change the services delivered to the client. Central to this change is the requirement to ensure ongoing suitability.

Ensuring investment suitability on at least an annual basis where the client has multiple investments – and potentially, multiple platforms or products using traditional processes – is time-consuming, costly and risky.

Just ask the paraplanners and administrators who have to put review packs together. They take a long time – in some businesses, days, not hours – and are fraught with the possibility of error. At a personal level, this preparation work can be deeply unfulfilling and stressful.

Holding on to staff, let alone recruiting them, in this environment is a challenge for practice principals worthy of another article. The economics of all this work are hard to ignore though. Lots of manual review preparation eats into recurring revenue margin.

Among all these challenges though are huge opportunities which, when grasped, are likely to shape the future of the industry.

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