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Ian McKenna: How small advice firms lead the way on technology


The FCA’s recent adviser firms survey provides valuable insight into how market practice is evolving and the challenges faced. Here are a few key points from a technology perspective and my analysis of lessons that can be learned.

Research and analysis

The gulf in technology use between large and medium firms and their smaller peers is marked. Smaller firms lead the way, with four out of five using it for research and analysis, including financial planning tools, compared with 56 per cent of the larger organisations. Such differences are noticeable across all other processes examined other than fact-finding and suitability reports, where slightly less than half of all firms use technology regardless of their size.

There are considerable savings and compliance benefits to be achieved in this way. Given the consistency of adoption regardless of size, any firm not using technology to support these processes should be considering the options available to it.

Customer communications

Customer communications is another area where smaller advisers are ahead of their larger peers, with 47 per cent of one-and two-adviser firms using technology here, compared with less than a quarter of medium and large businesses. This gap could be related to the lower levels of support services smaller firms have had to accept from life offices and platforms over recent years. There seems to be recognition among firms of all sizes of the importance of developing this area, with 79 per cent of larger firms and 57 per cent of micro advisers expecting to make more use of technology.

Small firms are also early adopters when it comes to using technology for monitoring and ongoing service. Sixty-two per cent of micro advisers and 54 per cent of small practices employ such services, compared to just 29 per cent of larger organisations.

Vertical integration

However, larger organisations are far more confident about growing their numbers of advisers, with 74 per cent of large and medium firms expecting to do so. One in five are also expecting to see more vertical integration. This may have more to do with the fact that you need scale to achieve significant benefits from such an approach, but it can bring huge advantages to clients of larger firms.

Automated advice

One negative from the study is that responses could reinforce the view of the FCA and Treasury that the established advice community is not likely to step forward to help fill the advice gap. Only 11 per cent of firms indicated they expect to increase their low-cost advice services, although this increases to one third for larger firms.

Having said that, the FCA research was conducted in November and six months can be a long time in technology. My own recent experience suggests that far more firms are now looking to get into this space.

There is a marked difference in the perception of customer preference as a barrier to automated advice. Only 21 per cent of large firms see this as an issue, compared with 61 per cent for very small advisers. It is noticeable that customer acquisition cost is not seen as a barrier, with only 16 per cent of large and medium practices, 12 per cent of small advisers and 24 per cent of micro firms seeing this as a problem. This is in stark contrast to the experience of most startup digital -advice businesses, which increasingly cite this as their major commercial challenge. This reinforces my view that the best people to capitalise on the opportunity from digital advice are established firms.

The survey shows adviser technology adoption is helping firms become less reliant on traditional business partners. Post-RDR advisers have a better business model and an opportunity to reduce the cost of the services they assemble for their clients. This is significantly changing the role of product and assets manufacturers in the value chain. Institutions need to understand how to adapt to these changes and move quickly to do so if they are to retain their market share.

Ian McKenna is director of the Finance & Technology Research Centre



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