Alongside the recent RDR papers from the FSA was a research report written by a consultancy called Oxera and commissioned by the FSA to look at the impact of the reforms it is proposing.
As well as predicting that up to 23 per cent of advisory firms could leave the market, one of Oxera’s conclusion is that, as a direct onsequence of the introduction of the changes in the RDR, a number of clients who currently seek financial advice would become executiononly customers.
The report says: “As indicated in the Oxera 2009 report, it is clear that the RDR proposals will somewhat increase the use of the channel.
“For example, advisory firms indicated that some clients who are not willing to pay an adviser fee would make an unadvised purchase. The order of magnitude of the impact is less clear, however.”
The report suggests there is no consensus view for a move to execution-only but says 12 providers indicated their share of the execution-only channel would increase by between 5 to 20 per cent and 9 per cent of providers expect non advised business to rise by more than 20 per cent.
The report says: “In particular, the larger providers expect the execution-only channel to become more important.”
But some people consider this change does not have to be bad news for IFAs. Finance & Technology Research Centre director Ian McKenna says: “People are communicating in entirely different ways.”
He says the future of adviser firms will rely on technology, offering easy-to-use solutions, as well as having some advisers to deal with complex products and situations and he says IFAs who do not cater for this will suffer.
He says: “A lot of IFAs have technophobia but you cannot ask the world to sit still. Everything is changing, so why on earth would you assume that everything else except financial advice is going to change?”
IFA Life founder Philip Calvert says the move to an execution only approach is a natural extension of the way clients get information. He says: “IFAs have not quite got it that consumers are much more internet-savvy. More and more consumers will be able to do a lot more stuff without
an IFA. Advisers worry about the RDR being a big problem but the elephant in the room is the internet. It has the potential to take more IFAs out the picture than regulation ever will.”
’There is huge opportunity in IFAs taking their higher expertise and level of qualifications and use it to teach people to do it themselves’
Can IFAs continue in a world with less financial advice and more power to the client?
Informed Choice chief executive Nick Bamford thinks so. Last year, his firm launched its own execution-only Sipp website, brilliantwithmoney.co.uk.
He says IFAs need to acknowledge the fact that technology will allow people to access financial products. He says: “It is about how consumers interact with the industry at large and there will be situations where, because of the complexity of a person’s situation, they will have to buy advice but I suspect there are a whole raft of things that people will get very comfortable with executing the transaction online.”
Bamford says the future for advisers is where they act as a planner, directing people towards their own transactions and execution-only services with the mindset that they may become more complex and financially attractive cases at a later date.
He uses the example of the hugely successful Hargreaves Lansdown technology-driven business model as the future for financial advice.
“The executed transaction might come with advice or it might be truly execution-only,” says Bamford. “But I am a great believer that people will be able to do more online. Our website has found that people are perfectly capable of arranging their own Sipp online.”
The experience of wrap providers in Australia suggests that the role of an advisers is not going to become redundant. Macquarie UK head of banking and financial services Jason Huddy says Australian wrap providers’ attempts to produce a direct-to-consumer platform did not catch on.
He says: “Those providers who have tried to launch direct-toclient platforms have found it difficult to educate and engage with enough clients directly to access markets via their platform. It just did not work.”
Calvert says the value of an adviser is in the expertise that he or she can offer and this is where the opportunities lie.
“There is huge opportunity in IFAs taking their higher expertise and level of qualifications and use it to teach people to do it themselves. IFAs’ professionalism does not have to be applied in face-to-face situations – they can take it and sell it to consumers in other ways. Consumers want to take control but they still want to learn.”
If advisers can find a way to get clients to pay just for the advice and then get the clients to carry out their own transactions online, McKenna says there are significant opportunities. “If you offer execution-only, you will need to help people make better decisions. Those IFAs who see this as an opportunity have a lot to gain.” he says.