The FCA first set out concerns about the way advisers were implementing the RDR, including explanations of adviser charging, last summer. Nine months later, the regulator released findings that 58 per cent of advisory companies are still failing to offer clients information about costs straight off.
Despite the industry’s poor reputation and ongoing regulatory issues, now may just be the perfect time to set up an advisory business.
More than a year down the line and the RDR continues to make an impact on advisory firms grappling with the new regime. New business structures and increased costs as well as ongoing legacy issues are all taking their toll, to the extent that it is not yet exactly clear what the sector will look in five years’ time. Indeed reading current comment and debate, it certainly doesn’t feel like it is a great time to own an advisory firm.
But hindsight is, of course, a wonderful thing and given the changes the RDR has imposed on the sector, the ability to start afresh is beginning to look appealing, not least because there are opportunities for those willing to embrace current changes and come to the table with a fresh approach.
Choose the right model
Choosing between the independent or restricted model should not be the first port of call for those planning to set up an advisory business. Assuming you know why you want to set up in the first place, the need to assess what it is you can offer clients is a better starting point.
Do you plan or want to specialise in a particular area of financial advice? What type of clients do you wish to attract? What expertise do you have and, if you have not got it, can you afford to buy it in? Answering these types of questions will lead naturally to whether you should consider the independent or restricted model and how the business is legally structured. In effect, there is no right model – it is whether or not the model you choose is right for you and your prospective clients.
Assess costs carefully
Any new advisory business will be free from legacy issues but there are lessons to learn from current problems facing advisers transitioning from commission to a fee-based structure. Even those more enlightened advisory firms that have improved income streams have seen margins squeezed due to increased regulatory, administration and insurance costs. Such costs are unlikely to decrease any time soon, so it is important to build them into a fully transparent menu of fees that takes into account the range of clients you have, as well as the level of services you offer.
Get smart with systems and outsourcing
We have moved on in leaps and bounds in terms of tools to help advisers do their job more effectively. So it’s time to finally consign the Rolodex to the bin and concentrate on the smart use of technology to gather data which documents and segments clients more effectively and efficiently.
As well as being essential for regulatory purposes, this will help to improve the cost of running the business overall.
A sensible approach to outsourcing ensures you have access to expertise or technology you don’t have in-house to streamline administration functions and also improve and add flexibility to your advice and investment offering.
This ability to adapt to advisers’ changing needs has already led to forecasts of platform assets under administration rising from £274bn currently, according to The Platforum, to £600bn by 2018 as advisers increasingly view them as an important part of their proposition.
The use of risk-rating and asset allocation tools alongside the increased use of platforms is now an essential investment partner for any modern advisory firm.
Take a professional approach
One of the key changes to come out of the current industry shake-up is that it raises the professional bar. Going forward, this will help the sector’s public image and bring much-needed innovation and professionalism to the industry.
Yes experience will still be valuable, as will the ability to deal and engage with clients. But anyone setting up an advisory business today needs to focus primarily on staff with relevant qualifications, as well as getting the right ratio of paraplanners, advisers and administration staff.
Ongoing training and ethical awareness will be an important aspect of any proposition going forward.
So, is it a great time to be an adviser? Well, the jury is still out for those currently in the throes of working through the monumental changes imposed on them.
However, for those looking to set up an advisory business now, there is the prospect of getting the format right to participate in a sector on the cusp of exciting change and all the opportunities that may bring.
Harry Kerr is managing director of Avalon Investment Services