A little over one year on from the introduction of the RDR, one thing is clear: the demand for investment advice among UK savers has not gone anywhere.
In fact, despite the apprehension that preceded it, few of the concerns raised at the time seem to have materialised. Not only have new requirements resulted in increased transparency and simpler fee structures for investors, they have also presented genuine business building opportunities for the adviser community.
We recently carried out a survey of 150 UK advisers which showed that despite fears investors would turn their backs on financial advice as a result of RDR, nearly one third (28 per cent) of UK adviser firms increased client numbers since its introduction and two thirds (67 per cent) experienced growth over the past few years, with one in ten experiencing ‘very strong growth’. Only 16 per cent reported a decline in numbers post RDR.
A wealth of opportunities
Advisers are benefiting from new demand as governments seek to incentivise personal saving for retirement with the introduction of auto-enrolment to SME’s. And as the Baby Boom generation moves further into retirement and transitions from accumulation to distribution of assets, entrepreneurial advisors are developing more innovative programs and strategies to match.
Whilst the advice gap is an issue that needs to be addressed, it is also an opportunity for both advisory firms and investment managers to innovate and develop new propositions for existing smaller customers and prospective new clients who do not require full-fee holistic financial planning.
The US and Australia have already made advancements with programs like “modular” advice, which addresses the needs of specific client groups as opposed to a full holistic ‘one size fits all’ offering. The UK can learn from both.
In our survey only 12 per cent of advisers reported they were considering introducing an execution-only service to cater to small pots and only 6 per cent had already added this service model to their offering. With an increasing number of websites launching that offer basic advice to investors, those advisers choosing not to address this part of the market will forfeit to online competitors.
Clients are benefiting
The removal of the commission structure allows advice firms to focus more on profitability and the creation of sustainable long-term value instead of transactional revenue. The elimination of commission bias and greater transparency around costs is encouraging firms to be more customer-centric and is helping to increase investors’ confidence in financial advice.
After five years of volatility, 67 per cent of UK investors say they are still conflicted between protecting their capital and pursuing returns according to another recent NGAM survey, and eight in 10 would focus on safety if forced to choose between the two.
In order to build more long lasting retirement income pots, investors know they need new strategies and they, and their advisers, are ready for new approaches to portfolio construction that can withstand the modern market challenges of rising rates, high correlations and increasing complexity.
Nearly two thirds (64 per cent) agree that a traditional approach of stocks and bonds is no longer the most effective way to access returns and manage risk, and 85 per cent would invest in alternative investments if they understood them.
As a result, advisers are building confidence in these investment strategies with their clients. Though currently less than one in four (23 per cent) of UK advisers say they regularly use them across their client base.
We in the investment management industry – by providing the analytical support advisers can draw on when discussing these strategies with their clients – can help put advisers in a stronger position to recommend the sophisticated investment strategies some may have previously shied away from. By helping clients to overcome their concerns about volatility and worries over meeting long-term saving goals, advisers are earning the kind of trust that lasting relationships are built on.
While there is no denying that the more predictable downsides of RDR have come into play, specifically the greater administrative and compliance obligations placed on advisers (UK advisers are now spending an average of 27 hours per month on paperwork – nearly 70 per cent more time than advisers in the US, Asia and the Middle East), the overall outlook for advisers and for savers is far from gloomy.
Both investors and financial advisers are beginning to realise the benefits of RDR, particularly the potential for increased confidence in the financial advice industry, higher quality income streams and a renewed focus on profitability and long term sustainable value.
As savers look for advice on how to navigate the modern market challenges of volatility, rising interest rates and high correlations, those advisers who expand their professional qualifications and investment capabilities through continued education will be in the best position to help their clients achieve their savings goals.
It is now up to the investment management industry to draw on its wealth of resources and provide the tools, strategies and insights advisers need to succeed.
Chris Jackson is head of UK retail & international products for Natixis Global Asset Management