The vast majority of regulated firms are little more than distribution businesses and, with the exception of Hargreaves Lansdown’s direct-to-consumer fund supermarket, there has been no significant innovation in the distribution of regulated products and none at all in the delivery of advice. Peter Hargreaves says his model would be hard to replicate due to the investment required, and he is probably right.
Putting aside the bigger firms, how would smaller ones fare in pitching for some Dragon investment? The sad truth is they would do badly. Small and even medium-sized firms have nothing remotely attractive to a Dragon investor. No patents, no proprietary tools and no means of taking market share and locking out the competition. We remain essentially a cottage industry full of lifestyle businesses that rely on putting advisers and clients in the same room as one another.
It is a problem that countless firms have tried to conquer, but always in the same way – by harnessing as many cottage industries as they can under one umbrella. Yet, despite some profitable business models, there is no real innovation, they have just become more efficient and eventually the gains will tail off.
Meanwhile, a huge market for advice is being ignored as businesses seek to maximise the value of their time – the one thing they cannot manufacture. Everyone is trying to shift up the value chain with the hope of generating more income from every hour spent in front of someone. At the same time, an increasing number of people are priced out of the advice market and into the clutches of banks foisting products on to them.
Where is the next big innovation? Somewhere, there must be a firm with a great idea that taps into the unfulfilled need for straightforward financial advice. Surely, what Hargreaves Lansdown has done for DIY investment can be mirrored on the advice side? After the RDR, will we see a new name gradually eating into the advice gap – I hope so.
Of course, there are those whose only contribution to the innovation debate is to lower client costs of investing by embracing tracker and exchange traded funds, only then to ramp up their fees, charging more for doing less.
In the words of a Dragon: “Let me tell you where I am on that one – it’s a ridiculous idea, it’s not a business I can invest in, so I’m out.”
Dennis Hall is managing director of Yellowtail Financial Planning