The advent of depolarisation has led many to question the ongoing viability of IFAs and, indeed, the future of financial advice. Schroders, however, would argue that the advice industry is now entering a positive phase in its evolution.
Changes brought by depolarisation have reignited the debate about the best way to help people achieve their financial goals. Instead of being the death of the IFA, this could be a golden age for those in the business of being a financial adviser, whether as an IFA, a client manager in a private bank, a multi-tied adviser or bank-based consultant.
For the last 25 years, the industry has been product-driven. The focus has been on product design, features, investment performance, commission levels, charges, reductions in yield, projections, brochures and key features.
The legislators, regulators and distributors of financial services products seem to have lost sight of why the life, pensions, savings and investment industries are in business – to provide cost-effective solutions to people's everyday problems and concerns. In this context, a product is purely a means to an end – a tool to help achieve an objective.
Losing sight of this holistic approach has been unfortunate as the end result has been higher compliance costs as regulators try to ensure that the right products are sold to the right people.
Going forward, success will be underpinned by embracing changes in regulation, technology, underlying products and pricing structures and a clear and determined focus on developing an advice process suited to the needs of clients.
What is this holy grail of advice? The common features of a successful advice process are the development of relationships, the provision of a financial healthcheck, a call to action and ongoing reviews and service. The advice process will change according to clients' varying levels of need and could be provided by differing categories of adviser:
Low-level advice – generic information and assistance with decision trees – tied agents and bank-based consultants.
Mass-market advice – focused fact-finds and basic needs analysis – tied agents, bank-based consultants, multi-tied advisers and some IFAs.
High-net-worth advice – full financial planning services – IFAs and top-end multi-ties.
All these advisers will have a key role in promoting a savings culture and the nation's financial well-being. In this scenario, the IFA will remain the benchmark adviser in the marketplace and quality of advice will evolve from a higher level of competence.
The genuine adviser will emerge as the long-term winner and the product-flogging mentality of the past will be relegated to the fringe of the marketplace.
The key developments that have allowed these different levels of advice to evolve are regulatory changes, new technologies such as wraps and electronic decision trees and the emergence of fee-based services. Fee-based advice is an area of much debate and will inevitably become a more important part of the advice process. The menu-driven approach is a big step forward in promoting fee-based advice but is still geared too much towards a transaction-oriented approach.
People wanting full financial healthchecks are often not looking to buy a product and may not have an immediate need to take action which can generate commission for the adviser. Peace of mind and confirmation that financial plans are on track are valuable outcomes to a consumer. As with other professions, such advice from a highly trained professional does incur a fee.
In this new era, the role of a fund manager will still obviously include manufacturing a high-quality investment product but quality training and support of advisers will be increasingly important.
Investors will demand greater clarity and understanding of products as the investment environment becomes increasingly complex.
Regulatory and consumer demands will grow and advisers will need to have a better understanding of some key areas of investment products – investment process, style bias, risk management, tracking errors and asset allocation. A narrow performance-related advice process will not suffice in the reshaped financial world. Fund managers who support and promote greater knowledge and understanding in these areas will be rewarded by trust from advisers and their clients.
We seem to be on the verge of the emergence of a new era of advice – one where advice will in itself become a valuable and sought-after product.