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Malcolm Kerr: Hybrid model is future for advice firms

Enabling clients to interact with a firm any way they want will be key to success

Malcolm_Kerr_EYLast year was a busy one for me in terms of conferences, seminars and awards judging sessions. It is a privilege and a great way of keeping up with what is happening in the market.

As usual, I was able to talk to advisers before the presentations and during the breaks. They included owners of large and small firms, highly experienced advisers and, pleasingly, quite a few new ones.

There were mortgage advisers, independent advisers and restricted advisers. Some focused on high-net-worth clients; others prepared to deal with almost anybody. In fact, the only thing almost all had in common were their complaints about the costs and impacts of regulation. Nothing new there.

One conclusion I reached is not very positive. But, also, not very surprising. One segment of advisers is selling professional services, while another is still selling products, albeit with facilitated fees as opposed to commissions.

My guess is that the latter might still account for a third of the market. Until it changes its culture, it poses a serious reputational and financial threat to the other two thirds, particularly in the defined benefit to defined contribution advice space.

Another conclusion was around technology. And this one is much more positive.

Point of sale technology has evolved into sophisticated practice management solutions. Platforms have arrived, lifetime cash-flow modelling is now widely adopted and many other web-based tools are creating improved client outcomes and reducing the costs and risks inherent in providing advice.

Technology revolution

But what I sense from many conversations is that we are about to see a further and more substantial shift in the use of technology by firms. Perhaps a revolution rather than an evolution.

The last few years have seen different strategies deployed to gain market share in the provision of financial services. For example, in the banking sector, we saw the launch of Metro Bank based on a strong belief that face to face interaction with clients in well positioned locations will be a winning proposition.

More recently, we have Atom Bank, formed on the belief the future winners will be based 100 per cent on telephony. Interestingly, the chairman of the latter was previously the chairman of the former.

We have also seen about 20 internet-only investment proposition start-ups, with Nutmeg, now holding £1bn of assets, claiming market leadership. Data on most of these businesses is in short supply but many seem to be a long way from making any money. Then, just in the last few months, a number of retail and investment banks have announced plans to join the fray.

Interestingly, a couple of the internet-only players are now recruiting advisers. More interestingly, advisers are creating online propositions for their clients. It is referred to as a “hybrid model” that enables a client to interact with the firm any way they want – laptop, desktop, tablet, phone or face to face. And it seems this is the future. Actually, it is the present for some firms.

Key challenges

Anyone thinking about developing a hybrid firm will be spoilt for choice when it comes to technology. The key challenges will be culture, strategy and execution.

As far as culture is concerned (and without wishing to be considered ageist) most of the firms I spoke with who are looking at this proposition seriously were run by people in their 30s, not their 50s. They were already using technology to cut down on paper and cost, and were very enthusiastic about using it to better serve clients that wanted to take advantage of it.

As far as strategy is concerned, the view was that “going hybrid” was not a new strategy but an extension of an existing service. Not just in terms of the initial advice but also in terms of ongoing service. However, one comment struck me: “We want to put clients in the driving seat. We want them to choose how to engage with us; to decide what channels they wish to use at any time and what fee propositions work for them”.

Of course, execution is key. And if your business is working well and your calendar full, why would you want to look into this? Building it will be costly and time consuming, yes. But not too costly and not too time consuming. Why not consider it an investment, not a cost? And why not look at what it might add to the value of your firm if you chose to sell?

The hybrid firm can provide transaction services to the mass affluent and still make money. Clients can look at a simple set of fees and work out what works for them. Do they really need face to face advice? Maybe not. But if at some stage they do, they can get it from the same place.

And then there is the next generation. It seems likely their first avenue to making an investment will not involve talking to grey-haired men around a table.

Advisers are well equipped to win in this space. They already have clients and referrals. They also already have advisers. And, unlike technology, you cannot buy this component off the shelf.

Malcolm Kerr is senior adviser at EY



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  1. Very true article, except the grey haired advisers have one huge disadvantage. The understanding of platforms. Everytime we talk a software provider into a bit of training , they ALWAYS divert into “our wonderful funds ” SCENARIO. We can read, and don’t need indoctrination into various multi asset funds. WHat we need is a full days training on how to adopt a back office system , and how to input new business. Never understand why they don’t do days like this. They would smash their targets in a week. In the meantime, our investments are staying where they are ! 20 minutes off now for Grecian 2000 session !!

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