Cast your minds back to 2004: Mark Zuckerberg launched Facebook from his Harvard dormitory room, sitcom Friends aired its last episode and, of course, the UK retail advice market officially “depolarised”.
Where up until that point advisers were either independent or tied, the introduction of the multi-tied label sought to further clarify the relationship between an adviser and the asset manager behind the solutions clients found themselves invested in. So where are we 14 years on? Well, those in the know believe the Friends will likely reunite and that Facebook shareholders could kick Zuckerberg out of his own business. Perhaps most unsurprisingly, though, clients now have even less idea of the true status of their adviser. And, arguably, this is only going to get worse.
From January, Mifid II rules will require fund managers and providers to retrospectively disclose all charges incurred on a client’s account in percentages and pounds – which includes advisers’ fees.
At this point, there seem to be two trains of thought: either the naïve clients “don’t read what they’ve been sent” or, more likely, clients “will take a view on value for money”. Since the abolition of commission, there has been much debate around fair and decent adviser charges.
Whether fixed or percentage, the pressure to bump up fees in line with ever-increasing regulatory expenses, professional indemnity, software, staff and infrastructure costs has helped fuel the rise of the consolidators. And this is something I do not see changing in the foreseeable future.
As with all value chains, the further towards manufacturing you move, the higher the margin, if you can handle scale. A decade ago, pre-RDR, networks wielded the power and influence over distribution, but they failed to capitalise on the means of production.
Today, the large consolidators require client assets to be managed through their own centralised investment propositions. For many, this includes their own funds or white-label solutions. The consolidation price is often linked to the destination of those assets and, of course, the true extent of independence versus restricted is always blurred when you look at each individual adviser’s own comfort zone and confidence.
So, 14 years on from depolarisation, we are seeing countless large nationals not just surviving but thriving despite loss-making planning arms, because their adviser support and client service propositions are outstanding and could not possibly match the advice fees being generated.
However, where asset managers are delighted to subsidise the cost of client acquisition and servicing, and where fund management margins can be so strong, I wonder if the regulator’s intention of a level playing field can ever exist.
Polarisation is here to stay. Advisers are either associated with fund management groups intent on building loss-making distribution models to fill profitable asset management solutions, or they are old-school, truly independent advisers struggling with increasing costs and the promise of even more pressure on income to maintain their services and standards.
Nick Kelly is chief executive of Alexander House