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Chris Gilchrist: Small DAs to disappear? I’m backing the adviser guerrillas

Big adviser firms outsource investment because they can’t control it themselves. Small firms will disappear because they can’t handle investment. I’ve heard both propositions within a few sentences. Eh?

I’ve said before I don’t believe the RDR spells the end of the small adviser firm. On the contrary, advances in technology mean small firms can access sophisticated investments, whizzbang back office and CRM systems and all sorts of planning tools that just weren’t available even a few years ago. With good back office and CRM systems, most compliance checking can be done remotely, which makes it more affordable.

So I don’t buy the notion that the future belongs to 400-pound gorillas. I prefer the notion of the adviser guerrilla, since it is the flexibility and adaptability of advisers that has kept the UK at the forefront of independent adviser developments. I struggle to recall any worthwhile innovation coming from national adviser firms, though I am sure they have developed sophisticated compliance controls.

Memorable and effective advertising (I except the memorable ‘pea-pod’ national press adverts for the launch of the Burns-Anderson Independent Network in the late 1980s), branding, service propositions? Fleet-footed guerillas have been a lot better at that than flat-footed gorillas.

The future of advice is about service propositions and their delivery. I don’t believe there are great advantages of scale. Big firms always end up creating their own systems, which end up being more expensive and inflexible than off-the-shelf software available on the open market. And if face to face contact is a vital part of the service, your advisers need to be near their clients.

Good advisers enjoy spending time with clients and working out solutions to problems. Nowadays, they often do the second bit in teams or with paraplanners. That’s a good development that follows professional practice elsewhere. With the proliferation of online planning tools, demonstrating that you are smarter than a set of algorithms is a challenge for all advisers, but the key advantage the intelligent adviser has is that he fully understands the route to the solution and can explain it in simple terms to the client.

So my view of the added value in the adviser proposition is that it comes first from the intelligence of the analyisis and recommendations, second from the face to face contact and third from the investment content. A lot of the current talk about investment is reminiscent of tiresome product discussions of the 1990s and seems ever more retro. It’s not about products, guys!

The added value for the adviser comes from honing the proposition and making its delivery as efficient as possible. For larger firms, that will often mean throwing baby out with bathwater in order to ensure everyone stays on the tramlines, which is why most of them – and the networks – will be restricted.

Restricted firms say how little is different, but the problem is that while the mass of your clients form an average, many individual clients aren’t average and if you take the full financial planning process seriously, there are often points at which an adviser ought to consider deviating from the restricted solution.

Despite pious claims to the contrary, there will be commercial pressures for restricted advisers to cram the client into the box. Chartered and restricted? I don’t think so.

Chris Gilchrist is director of FiveWays Financial Planning, edits the IRS Report newsletter and is the author of the Taxbriefs Guide, The Process of Financial Planning



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Richard Bishop 15th July 2013 at 2:01 pm

    Products don’t matter anymore, yet independent is key? What tosh.

    IFAs just offer more products than a restricted advier.

  2. I am sympathetic to the underlying thesis of Chris Gilchrist. Most industries adapt or die. Most industries have a wide range of business sizes. There is sufficient current demand in the market place to ensure that the death of the adviser would be self induced rather than inflicted.
    But Mr Gilchrist’s thought patterns are, like the Regulator’s, heavily influenced by the past, and as both the FCA and history are at pains to point out, history is no guarantee of what will happen tomorrow.
    Most historical developments have occurred either as a radical adaption to the past or a total overthrow. Radical adaption tends to occur in an unfettered market, and often leads to a different environment. Overthrow, and revolution, tends to occur in a highly restricted environment. e.g. the French and Russian Revolutions, but oddly they are replaced by regimes that are remarkably similar to those overthrown. At least for a while.
    My own view of the financial market is that both forces are at play.
    The advent of both applicable technology and an increasingly wealthy and sophisticated populace create pressures that would create change on its own. An increase in market size and an improvement in technological efficiency should logically have driven down costs. They haven’t. My own surmise is that it is a combination of gross inefficiency from the providers and all round greed. This is not a a scenario that is likely to remain in place forever. Radical adaption would have been on the cards.
    But alongside this is a Regulatory Regime that is too reminiscent of the old French and Russian ruling classes. Rigid, isolated from the problems yet self obsessed with their own rightness. This would suggest that any change would be a revolutionary one, but it is difficult to see that happening when Governments give the Regulators power to licence. When World Governments come together they do have extraordinary levels of power to control. It’s just a pity that when they come together it does not appear to bring together extraordinary levels of intelligence – too often its more like a toddler’s shindig.
    For these reasons I believe that “fleet-foot” and “flat-foot” are images from an Ancien Regime, rather than a description of what is ahead.
    To cope with the present requirements of the regulatory regime any adviser needs access to all the help they can get at every level. That is expensive. It will also be restrictive, because virtually by definition, a lot of those systems will be provided by the flat-foot brigade.
    Knowing the exact parameters of any product is likely to become increasingly difficult. Very few now do “what they say on the tin”. In the past the market operated on trust at various levels. It’s the only way in which most professionals can operate efficiently. But for professionals in the financial sector it has become a dangerous assumption because, to my mind, there are far too many operatives more focused on making money at any cost than on making money professionally.
    And the “fleet-foot” is dependent on these other professionals being trustworthy. It is not an assumptions that I buy into any more. The consequence is that the fleet-foot becomes more leaden-foot because of the sheer volume of back-protecting work required.
    The conundrum then is not a question of fleet-foot and flat-foot survival but of total market structure. In many ways the current environment is still based on the one that existed prior to the big bang of 1986. But the structural and behavioural changes that have happened, especially in the last 15 years means that the old environment is being torn to shreds, and no-one has any idea what to do, and morality is a burden rather than a strength. So many at the top are so pleased with the current gravy train that they are happy to maintain a broken status quo.
    Britain is not only happy to do – it is desperate to do so, as the financial industry is such a large earner for the country. To continue down this line the Regulators must impose an ever greater set of rules to underpin public confidence, and we all know this means an ever greater opportunity for people to use the inevitable regulatory conflicts. And so on ad infinitum.
    But it never is infinitum. At some point the system breaks (it recently did, and we will pay for the sticking plasters for years to come). Old fleet foot and old flat foot will be buried by the new varieties of operator – who will probably not be on foot at all.
    For that reason I believe that discussion of who will survive is just filing for a newspaper. What we should be looking at is what is really going on around us, and preparing for either the next collapse or a revolution.

  3. Agree with what you say I went “cold turkey” on indemnity commission a few years ago. It’s now all fee based offshore using a platform. Platform charges in total amount to less than 0.2% and my fee is 0.8%. There are no exit or initial charges. Client can have his money back anytime he likes and top up anytime simple wire in funds or make withdrawal and I take my fee from the master account as and when I need. It’s bliss 🙂
    Client can have invest. Trust etf or shares and I buy/sell passive strategy. No big company can even come close. All docs work on email/scan the US is miles ahead.

  4. man on the moon 16th July 2013 at 2:07 pm

    read a book once called ‘its not about the bike’. it wasn’t either in Lance’s case.

    agree with Chris that our job whoever we are is to find a solution that may lead to the best product we can find.

    think big is best is a reminder of the ‘heady days’ of the 1990’s when being a National was the pinnacle of everything. was not the case.

    small enough to keep costs down, small enough to be able to make business decisions, small enough to realise when you need to outsource, small enough to be able to adapt quickly.

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