An inevitable and welcome outcome of the RDR is that so-called direct to consumer propositions have improved dramatically. That this development is an overwhelmingly positive factor for financial advisers may seem counterintuitive.
However, the story that the financial advice business will fall victim to a post RDR stampede of consumers going it alone has been oversimplified and misunderstood.
Whether or not the RDR ultimately encourages more people to take up financial products is open to discussion but what is becoming clear is there will certainly be better facilities available should they decide to do so. For those people wanting to invest without seeking advice, the services available are increasingly compelling. Many of them offer deep functionality with user friendly interfaces.
For the advisory community, the question is whether any growth in D2C adds to the total flows into financial products or whether it erodes their market share as clients switch to a self serve model. Industry evidence on this is varied.
A survey of 273 investment advisers we conducted this autumn found that more advisers expected rising profitability over the next 12 months than they had just three months ago. In addition, 65 per cent of advisers reporting taking on new clients, up from 57 per cent last quarter. This was even higher for the most successful segment of advisers, with 71 per cent taking on new clients. Sentiment overall within the industry was upbeat, with the overall prosperity index marginally higher than in past quarters as well. It would seem that many advisers continue to thrive, particularly those who have embraced the advent of RDR to make their businesses more efficient.
Meanwhile, on the consumer side, our research indicates that among households with more than £50,000 in earnings, only 19 per cent prefer to be fully self-directed in their investments. Fully 81 per cent want some form of financial advice, whether it be task-based, guided or ongoing.
To dig a little deeper, among this group it is typically more complex financial matters which lead people seek advice, such as inheritance, pension planning or taking tax advice etc. People tend to be more confident about the simpler decisions, such as investing their annual Isa allowance.
Auto enrolment is also creating a nascent breed of investors. So far, around 2,300 employers have automatically enrolled 1.6 million workers into their pension schemes. By 2018, over one million employers are expected to have enrolled up to 11 million workers. This will create an entire population of people forced to think more broadly about their investments and some potentially more interested and engaged in managing the future of their pension pots.
If your base of investors is increasing and if the availability and access to financial provision overall is improving, then you should succeed in persuading more people to invest and grow their portfolios. This is the future opportunity for the advice profession because, as mentioned earlier, as workers build wealth over time and encounter more and more complex financial decision-making naturally they will then turn to professional advice.
This is a very persuasive argument for the continued health and future growth of financial advice, not just because policy is driving an increase in the potential pool of clients eventually seeking an adviser but also because those people will be more mindful as to the limits of their own expertise.
As people are encouraged to invest they will learn for themselves the value of advice and cost will become less of an issue. In the past some people have used advice channels merely as a route to purchase. Perhaps this may have caused some scepticism as to the value of some of the “advice” on offer. Going forward, well trained, professional advisers can look forward to servicing a growing pool of clients who have actively sought advice and will be willing to pay for it.
Keith Evins is head of UK marketing at JP Morgan Asset Management