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Do the knowledge

It is impossible to escape the fact that if you are a financial adviser

and derive a significant part of your income from selling financial

products, then the word “disintermediation” ought to concern you.

Broadly speaking, disintermediation in the 1 per cent world will mean that

your revenues from facilitating product delivery are likely to continue to

drop across a wider product range and the number of people buying products

from you may also diminish as other means of direct purchase become more


This is not to say that advisers cannot make money from mere product

delivery. Some are being successful by providing their clients with cheap

and easy means of making purchases, typically through an interactive


Of course, significant volume will be necessary to secure the overall

return that one is looking for from this kind of activity as margins are

typically thin.

The other part of the adviser&#39s role is to give advice and implement

solutions, with or without financial products. For those advisers offering

this service – hopefully, the majority – disintermediation should pose no

fear. Focus will clearly be on areas of business where the simple direct

purchase of a product does not provide the solution.

In a column on tax planning, it does not seem inappropriate to mention

that, wherever taxation connotations are relevant, then advice will usually

be highly desirable. The difference between getting a strategy wrong or

right can be in the order of 66 per cent.

The need to target individuals and businesses who have a need for advice

is something that has been in the news frequently over the past year.

Product providers and advisers who anticipate offering more than the

facilitation of product purchase will be gravitating towards that segment

of the market that not only requires advice but will be prepared and able

to pay for it.

Services for the new high-net-worth or, perhaps more appropriately, mass

affluent market are being launched daily. For some, the cultural shift from

selling products to giving advice is immense. There are a number of hurdles

to overcome, including, in some cases, a gut feeling that “We do not give

tax advice.”

Well, I am afraid to say that if you are to be successful in delivering

advice, with or without financial products, it will be essential to at

least know the tax implications of those products and the tax environment

in which those products can be used in order to maximise the benefit that

they can bring to bear for your clients.

What this means is that, while you will not necessarily be giving tax

advice, you will be giving advice on the most effective way of achieving a

particular objective or delivering a particular solution and tax will often

be fundamental to that. Tax as a knowledge area cannot be ignored and must

be understood in a reasonable amount of detail.

Of course, where any very tax-specific implementation is necessary, for

example, completing tax returns or applying for clearances, it may not be

the role of the adviser to actually do this job but it will be important

that he knows about it. In addition, one should never underestimate the

value of making a client aware of tax-planning opportunities even if one

cannot actually implement them.

Merely being able to explain coherently what the opportunities are and how

to realise them will be of tremendous value if the client would not have

known about them otherwise. This approach gives rise to a clear opportunity

for the financial adviser to act as the “right brain” of the financial

planning “whole head”, providing the creative outline for the solution, and

for the accountant or lawyer to be the “left brain”, putting in place the

logical means of achieving the objectives of the client.

Whichever way you look at it, it all starts with understanding on the part

of the adviser and understanding on the part of the accountant or

solicitor. Without an understanding of the client&#39s requirements, the tax

and legal rules and what is available to deliver the solution, no action

can be taken. In what is a competitive market, building and sustaining

competitive advantage is essential. One of the key blocks in this is

differentiation and having good tax understanding is a means to this

particular end.

For some, merely having a tax understanding will be enough in itself to

create differentiation. In the long run, however, one must seek tax

knowledge as a means to an end, that is, a means of enabling financial

products and solutions to work better.

Having tax knowledge will also enable the deliverer of advice to give much

closer to truly customised advice. In all markets, increasingly, consumers

are looking for and valuing truly customised solutions. The challenge for

the providers of those solutions is, if possible, to create mass customised

solutions through the development of “recipes” for particular client types

with particular objectives.

There are only so many variations on the theme and, provided that there is

a full menu of solutions to choose from, then a truly customised solution,

created from mass produced components, can be provided cost-effectively for

any individual.


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