Your IndustryApr 2 2020

Roger Brosch: the industry has changed for the better

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Roger Brosch: the industry has changed for the better

The advice business has changed a great deal in the past decade in three very powerful and significant areas.

The sector is much more professional, much more client-centric and purpose-driven, and it is more transparent in the way it gives advice. 

This has been driven by several factors. We have witnessed a shift from the ‘product push’ era of sales and a transactional focus to one that is much more holistic, service-driven and focused on long-term, relationship-based advice.

Those that have successfully made the transition have enjoyed an increased level of control, profitability and client loyalty

One predominant reason for that is the removal of commission from the market.

When I joined the sector in the late 1980s it was about large sales forces acting as agents for a product provider, selling whatever product that provider decided to push to market.

Impact of RDR

It is very different today, where products are designed specifically to client needs, ever more tailored for individual circumstances.

That shift has been significant. It has accelerated since the Retail Distribution Review, and has taken a time to embed, but in my view, it is now clear for all to see.

Key Points

 

  •  The advice business has changed dramatically over the past decade
  • A large part of this has been the removal of commission
  • Advisers are much more client-centric

 

As mentioned, I believe one of the main drivers is the removal of commission and the move to client-agreed fees, which has been predominantly driven by regulation.

There have been quite a few different staging posts on this journey, but RDR had the biggest impact almost 10 years ago. However, it has taken a while since the implementation of RDR for a change to really flow through. It seems to have taken three to five years for some businesses to adapt, with some struggling and some disappearing.

Those that have successfully made the transition have enjoyed an increased level of control, profitability and client loyalty.

Government change alongside regulation has been a big driver too.

They have not always worked together though and one sometimes wonders if the Treasury actually talks to Canary Wharf at all before making decisions.

But some reforms such as pension freedoms have driven the sector towards a much more service-oriented model driven by client demand. 

Technology has also been a key driver of change.

The industry is using technology more effectively now and although there is still a long way to go to compete with other market sectors, it is clear that technology has been utilised to assist advisers to show where they can add value and enable them to adapt to changing service demands.

New technologies such as cash flow modelling, or our ability to deal with clients remotely through Skype or Zoom, have greatly improved the client experience and adviser efficiency.

Advisers can deal with more clients, more effectively and provide a broader, deeper, more holistic service, which really enhances the relationship they have and the value they add.

Critically, these changes lead to much longer, deeper and higher-quality relationships than the transactional model. In the ‘old world’ advisers tried to create a need, then solve it with an existing product solution.

Advice is now about a clear strategy based on a personal cash flow model unique to that client.

Servicing is about regular reviews as to progress on that strategy, considering tactics appropriate for the time with adjustments made, rather than a ‘product solution’.

Client demand and social change have affected this too. Clients know what to ask, and have expectations of how and when they want to interact. 

Greater transparency, driven by technology, has made clients more demanding and they now, quite rightly, expect a high quality of reporting and ongoing servicing. 

Culture and purpose

Purpose is a helpful description, but in essence it is an expression of a company’s values.

The culture of a business is defined by its values. And ultimately that determines how a business and its people behave. When something goes wrong, if you are a truly client-centric business, you will always end up doing what is right by the client.

There are still questions about whether the industry has completely shifted culturally, but clients are not the ones pointing the finger. That is more industry players trying to point out where the business could be improved further.

There are a few businesses that have found that change very challenging, but most are committed to completing the journey. They understand the imperative.

Most businesses are now very client-centric in their whole approach. At the heart of their values is the desire to deliver an outstanding client experience.

To do that, advisers have to add a lot of value, they cannot just sell a product.

That shift to client-centricity has therefore also played a key role in changing product structures and product diversity, as well as the way advisers engage with clients.

If an adviser looks after clients really well, they will invest more, and they will stay clients for longer.

When advisers retain quality clients, they have stronger recurring revenues, which make the business model more sustainable than constantly living from commission.

This more sustainable approach enables advisers to invest in improving the proposition and quality of service. It is self-fulfilling, and a hugely beneficial transition for all stakeholders

Evolution of companies

Part of the current drive to consolidate is not just the age of advisers. It is also driven by the expense of investing in technology and platforms and building client-centric and relevant investment solutions.

It is not easy, simple, or straightforward. You need a lot of technical capability. All of that is difficult to do if you are a small advisory company.

When looking at being part of a bigger company, advisers will look at us culturally first, then the quality of client propositions.

Those two factors will help decide whether it is the right business to join.

Adviser retention is important. Foster Denovo created a very clear foundations document when we started 15 years ago, covering the culture, principles and values that we think should be important.

In our induction programme, everybody goes through and learns those values, and has the chance to question, challenge and add to them.

We try to get our advisers and staff as engaged and involved as possible. It creates a level of empowerment where people feel confident, as it is clear that their values are represented by the business they are a part of.

That leads to retention of the right people. People stay where they feel connected.

There is a long way to go, the industry is still evolving and is just at the early stages.

The market is now in a consolidation phase. Advisers have realised that you do need a certain scale to be able to operate effectively.

The bigger businesses are starting to take greater control over the advice, investment, and product solutions that they provide to clients and deliver a truly client-led service proposition.

Roger Brosch is chief executive of Foster Denovo