It is now generally accepted that the FSA intends to depolarise the retail financial services market in one form or another.
Despite the prevailing caution among the industry, the good news is that, in a market without the constraints of polarisation and the better than best rule, incredible opportunities can open up for advisers.
Those who accept the changes can look forward to increasing their revenues, growing and reshaping their businesses and earning a higher degree of prof-essional respect.
The adviser of the future will be operating an extremely efficient business. It will generate higher and stable revenue streams reflecting the provision of regular high-quality advice for which advisers will be able to charge on a rec-urring basis, according to what the market will bear.
The key to this future lies in looking beyond the issues of perceived adviser status and the concern for client confusion, which has not been borne out in research.
True, some clients will want choice while others will favour brand. However, they will all value greatly improved service levels and advice on issues that truly add value.
The capacity to deliver on service and advice will result from an inflow of capital and support from institutional providers, no longer inhibited by the better than best rule.
The support will come in the form of innovative technology platforms that will greatly enhance client service and provide advisers with all their back-office and front-office system needs at little cost, including client management systems, compliance support, technical and analytical capabilities, transaction and reporting services.
These platforms will change the shape of the advisers' business models and allow the adviser to leverage up the revenue stream off the client base. Advisers will see the platforms as the core element both for supplying the client with service levels that will become the norm and for achieving cost efficiencies.
Advisers will also be offered retraining programmes so they can deliver true investment advice rather than merely making product comparisons. The technology platforms will deliver the necessary information and analytical tools to formulate the advice.
New adviser business models
Advisers will need to re-think their role in the distribution process. For the adviser of the future, inv-estment transactions, swit-ching and consolidated reporting will be routinely provided services delivered by technology.
They will need to offer more in a world where the clients will see value in the adviser's creating technical financial planning strategies across a range of taxation wrappers and product lines and providing investment advice to back those strategies, including asset allocation and switching as required through a regular portfolio review process.
The review process will develop a true service relationship between advisers and clients.
This relationship is more professional and justifies regular review char-ges. These may be in the form of commission or fees, either of which can be “dialled” up or down and paid through automatic processes, avoiding negotiation with the client each time a fee is due.
Advisers will be able to position their services across a spectrum, at the one end offering clients wide choice, perhaps with little brand support, and at the other narrow choice backed with a strong brand name.
The importance of adviser status will be determined by market forces.
Consumers are likely to value reasonable choice, provided it is justified by research and backed by sound advice and excellent service. Competition and market information will identify where to gain good advice.
Ultimately, the quality of the adviser and the host technology will impress the client. In this world, will multi-tie, AFA, IFA status matter?
As these new “stable” business models establish themselves, they will drive up the value of advisers' practices and improve the opportunities for the many advisers in middle age to enhance their business-succession plans.
In an industry structured around ongoing char-ges, it is more difficult for new advisers to start up on their own and recruitment of quality people will be the main route for those who want to enter the industry, further consolidating value into existing practices.
The pressure to generate the next sale may become an issue of the past.
Not all advisers will want to make these chan-ges. Some will decide to leave the industry but the opportunities that unfold will attract others.
Providers will see distribution as distinct from product manufacture. They will vie with each other to secure distribution and to regain the influence in distribution they enjoyed in the 1980s.
Providers will develop their distribution capabilities by attracting advisers into networks or “clubs”by the quality of the platforms they offer.
The platforms will attract the smaller advisers which will need to benefit from the scale of technology easily available. Existing networks will need to be on their guard as the new platforms will facilitate and encourage adviser mobility.
The challenge for pro-viders is to understand the psychological and business needs of advisers, to satisfy these needs through the technology platforms they offer and to do so in a way which fits comfortably with the distribution cultures.
Institutions will have to relearn the art of courting a diverse range of very motivated and individual people.
These changes will work effectively at the higher end of the market but are unlikely to close the savings gap.
The FSA has identified that advice is needed to drive savings. However, it has yet to be proved that access to advice will be sufficient to initiate savings. Consumers will have to be made more aware of the need to save for their future, perhaps through education, financial incentives or even compulsion.
It is important to keep the issues of advisers servicing the upper end of the market separate from those of structuring advice for the lower end of the market. At present, the technologies that will assist advisers with wealthier clients are not economic at the lower investment levels where the savings gap exists.
However, the efficiency of technology is improving and the minimum viable portfolio size is continuing to reduce so that in time the service may be available to all.
The future looks bright for the adviser willing to adapt. Innovation will abound until the market settles to a new structure, with changed advisory and provider practices.