Falling levels of consumer confidence also support the rationale behind the transition, with clients likely to feel more trusting of an advice process that involves building a long-lasting relationship between an adviser and their client.
To try and measure how far along this journey advisers feel they are and what steps they may be taking to review and adapt their existing business models, we employed a research agency to talk to advisers on our behalf and to pull together the data to show trends and behaviours. This research will be carried out annually and the results will form the first-ever index intended to track where advisers are on the transition from transactional sales to new model advice.
The first wave of the annual Skandia Financial Planning index shows that the advice sector is just over half way through the transition towards the new model of holistic wealth management with a score of 55 out of 100. The index uses a scale of 0 to 100, with zero representing a pure transactional approach and 100 being true holistic wealth manage-ment. Several key themes emerged from the analysis of the research.
Defined investment processThe research shows that 75 per cent of advisers provide the majority of their clients with a full risk assessment and asset allocation as part of a defined investment process. Only 5 per cent do not provide this to any clients. Using a defined investment process for the majority of clients indicates that advisers are adopting a holistic approach wherever possible while providing a consistent experience for the client.
Recurring income and feesAdvisers who are starting to move toward the new model are expected to review their remuneration patterns to aim for a higher percentage of recurring income. In total, 39 per cent of advisers now have 40 per cent or more recurring income. The progress this represents is difficult to evaluate as it depends on the remuneration model operated for new business and when the transition to the new remuneration model commenced.
It is difficult to be precise but it is unlikely to foresee much more than two-thirds of remuneration recurring unless asset acqui-sition and/or initial remuneration levels are minimal. Based on this, the level of recurring income reported feels like good progress.
Platform usePlatform technology is widely thought to facilitate the move toward the new model as the tools and functionality offered add value to the planning and ongoing review process. Ninety per cent are using platforms which would suggest that the majority of advisers are embracing technology to move towards the new model and most use two or three platforms.
The fact that most advisers currently use more than one platform is most likely to be driven by client segmentation. Client segmentation points toward differing levels of service for different client types. Not all may be offered a “holistic” service.
The trends emerging from this research and our own experience tell us that the transition to the new model is occurring across the market but that firms are at different stages and are adopting different processes and procedures. The move has started and will gather pace as the regulatory landscape becomes clearer.
Peter Jordan is head of proposition marketing at Skandia