In recent times there has been a great deal of change in the financial advice market, with companies which have not been able to adapt and utilise more forward strategic planning becoming vulnerable to merger or acquisition.
As a result of these changes, we have seen a formation of two distinct groups of clients. First, those who want a simple one-stop transaction and do not look to long-term advice or relationships and, second, those requiring more specialist advice with a view to being a long-term client.
This is largely driven by the public being more financially astute and aware as to what is available to them.
Technology has been a major factor in this improved consumer awareness, with online information and transactional services becoming increasingly popular.
Additionally, there has been a drive to bring more transparency to financial products by making them simpler and clearer, with varying degrees of success and failure.
All in all, this encourages consumers to take it upon themselves to take the time to research the product and provider that matches their perceived needs.
So, how have financial institutions reacted to this new breed of client?
Those working in our arena are having to adapt to lower commission on certain products, leading to a need to expand into specialist financial advice and leaving the perceived simple products for clients to pick themselves.
Whether this is a good thing or not remains to be seen. We will only really know when the time comes for the public to look back at what they have and assess whether it was right for them. What is clear is that by choosing not to take advice there is no recourse for them if they make the wrong choices.
A good example of this in practice was in the late 80s and early 90s as a result of the Government advertising its advice to “break free” of the chains and look outside company schemes for pensions.
This resulted in clients thinking this was something they needed to consider and some (mainly tied) advisers preying on this concern with inappropriate advice to transfer out of a company scheme. However, on this occasion, advice was given with recourse to the advisers concerned although there was no recourse to the Government for their ads, which helped to cause the problem. Buying products without any advice in return for lower charges carries defined risks that should be borne in mind by the client.
In order to remain viable in this changing market, advisory firms have to look to cater for the more specialist market and non-fee-charging firms may need to move to feebased advice in areas such as tax, retirement planning and investments.
The single generalist IFA is being driven out of the market by the low levels of income from mass-market products and clients' perception that to take advice in specialist areas would require a specialist adviser.
There is a significant education process required to persuade clients that they will need to pay for this advice as it will come at a greater cost if firms cannot rely on mainstream products to provide adequate income.
This also leads to big IFAs needing to have within their salesforce specialist advisers concentrating on technical aspects of advice while balancing the client proposition with online services and general IFAs to sweep up the reduced requirement for this service.
Therein lies the problems for firms of multi-channel complexities and the forward planning needed to move with the changing market.
Specialist advisers with AFPC or other qualifications are needed and salaries need to reflect this. Training needs to be more specialised, research more complex and all within a short space of time. Big firms will need to clearly define three channels of business for clients – online or execution-only, general phone or face-to-face advice or face-to-face specialist long-term consultation.
Firms that can cover these areas will benefit from continued immediate business in areas such as mortgages, basic protection and stakeholder while building relationships with long-term clients with a need for in-depth specialist advice and regular reviews.