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
The other part of the adviser's 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
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's 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
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