Financial services providers that shunned their advice arms after the Retail Distribution Review have been creeping back into the advice space as the vertical integration trend ramps up in the hunt for profit.
Financial merger and acquisitions advisory business Imas, among other market commentators, has predicted the general drift of provider companies buying or launching advice departments is set to continue and grow in a “natural move to become closer to the end client”.
At the beginning of July, Fidelity International was reported to be mulling a launch into the UK advice market.
Fidelity did not comment, but it is understood that it has been running a ‘proof-of-concept’ for face-to-face advice, with five investment advisers. It will also look to mirror its digital advice service — currently only available in Germany — at some point in the future.
Earlier this year, investment giant Vanguard hit the headlines when it announced it was to enter the UK advice market, a move it said was to “evolve” to meet investors’ “changing needs”.
These are the latest in a series of events that have seen similar vertical integration moves over recent years. Standard Life launched 1825 in 2015; Quilter bought Intrinsic.
Seven Investment Management has been eyeing an expansion of its advice offering, while Schroders and Lloyds have combined forces for their joint advice venture, Schroders Personal Wealth.
The reasons
Fred Hansson, partner at Imas, said: “It’s quite a natural move to become closer to the end client because at the moment, they are exposed in that their product is only selected on performance or costs.
“If you can get into the front end with the client, where advisers are, you have more influence on it and you add the relationship and trust you can build with the end client as a factor.”
Mr Hansson said the drive towards passive investing had played a part in the trend, as larger asset managers were operating on a smaller margin, meaning fund houses were being forced to either “scale up” or “specialise” in order to maintain profits.
Heather Hopkins, chief executive of NextWealth, agreed, adding that she expected to see more companies branch into advice in the future.
She said: “If I were chief executive of an asset manager, I would absolutely want to hire financial advisers. I would want a direct connection to the customer and more control over my own future.”
Mike Barrett, consultant at the Lang Cat, suggested providers’ move towards advice was not solely driven by “pure distribution” or “commercials”, but also a move to help them navigate the strict advice-guidance barrier.
He said: “The inevitable complexity with certain products and financial decisions means that many providers find it very difficult to speak with clients in a non-advised framework.
“If the client doesn’t have an adviser and is, for example, asking what they should do with their pension as they approach retirement, it is difficult if not impossible to answer this in a satisfactory way without giving advice.”
Tables have turned
The trend is a reverse of how the industry behaved in 2012, when RDR was due to come into effect at the turn of the year.
According to the Financial Conduct Authority’s final Financial Advice Market Review report, there were nearly 10,000 advisers working in banks, insurers and building societies in 2011. By October 2014, this had dropped to around 6,000 advisers.
Overall, adviser numbers fell from by about 10,000 to just over 30,000 in the same time period.
The drop came as large names fled the advice industry. Lloyds axed its mass-market investment advice service in 2012 and 650 jobs were lost when HSBC ditched its tied-advice service in the same year.
It was clear new rules prevented advisers in banks from behaving as salespeople. In 2014, Nationwide reported a 40 per cent drop in sales of investment and protection products, which it said was a result of RDR.
What now?
The potential encroachment of large providers on the advice market did not concern commentators, however.
Ms Hopkins said vertically integrated companies were often viewed negatively, but argued that “anything that helps more people access advice is good for consumers”.
She added: “The more consumers have access to advice, the better. The more providers recruit and train advisers, the better.
“With more responsibility being put on the shoulders of individuals to secure their retirement, the demand for advice will continue to grow.”
Keith Richards, chief executive of the Personal Finance Society, agreed. He said well-capitalised and financially sustainable businesses could play an important role in increasing the accessibility of advice services and attract new talent to the profession.
He added: “It is important to enhance the image of this sector as a highly skilled profession, rather than a more transactional industry.
“There will always be an important role for small, independent intermediaries.”
imogen.tew@ft.com
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