The UK is going through a major transition in the way that financial advice is delivered to consumers at a retail level.
Advisers do not seem to understand the power they have in this new world. We know the only truly sustain-able business model is one which adds real value to the main stakeholders in any advice process – clients, advisers and product/ platform manufacturers, whose role is as suppliers.
Consider how this relates to other industries. Tesco distributes thousands of products through its channels – Tesco supermarkets, Tesco Metro and the internet.
The biggest brands in the world fight to get themselves on the shelves of this powerful distribution brand. It is Tesco that determines what it will stock and on what payment terms. This is a source of perennial annoyance to its suppliers but Tesco understands where the power lies – with itself.
All suppliers want to be part of adviser distribution but many products provided by our suppliers are already commoditised despite efforts to convince us otherwise.
When are advisers going to wake up and realise their power? It is time for us all to start voting with our business to force suppliers to become better at meeting our needs rather than continuing to design ideas and then trying to force them down the distribution value chain.
Advisers are closest to the customer and best able to sort through the confusing multitude of products which could be used to achieve their objectives.
Advisers are recognising their position and rearranging their businesses to meet clients needs more effectively rather than acting as mere distributors. Product and infrastructure manufacturers have been slow to respond to the increasing fragmentation of the distribution market.
In the distribution market, there are three broad groups of advisers:
The Committed Planners – providing comprehensive financial planning advice predominantly for a fee.
The Mixed Best of Breed Advisers – developing a clearer-value proposition involving wealth manage-ment and transactional advice but are happy to work on a mix of fees and commission as appropriate, driven by client needs.
The Committed Salespeople – those happy to continue on commission, providing transactional advice and ale of products.
A select few manufacturers have been successful in segmenting the market and aiming their efforts at the top two sections of the advice market – committed planners and best of breed advisers. But many big companies continue to make the same mistakes as their distrib- utors by offering an undifferentiated one size fits all product offering.
As any marketing person will tell you, the minute you start offering your product or service as something for everyone, it often ends up appealing to no one.
We have been conducting research among many clients – networks, service providers, IFP members, PFS members, product manufacturers as well as with wrap/fund supermarket providers.
Analysis of this data has revealed 12 key characteristics of the new model adviser that are highly indicative of business success.
The new type of adviser has the following characteristics:
They think like business owners, not advisers (even if they work for someone else).
They provide the right advice to clients based on their circumstances and do so profitably.
They recognise there is no one way to provide high- quality advice but there is their way. The business service proposition reflects the unique opinions of the business owner/s and they drive all business decisions around those opinions.
Sale of financial products is not the goal of the business. They are used as tools to help the client achieve their objectives.
All types of charging methods can have merit in the right circumstances but those circumstances are dictated by client needs. The adviser uses the method or methods that are right for the clients of their business.
They understand that the value they add to clients goes way beyond picking funds and managing money. They realise that these are actually low-value-added tasks when compared with the strategic advice they provide to clients.
Following on from this, they understand that value creation commands a premium price and still adds value. They know their true worth and are comfortable being paid a premium price and receiving an above-average income for what they do.
They build assets under management and charge ongoing fees for their management to create a sale value within their business.
They recognise that advice is the one component within the financial services food chain that can command the lion’s share of the margin available. Other services such as fund management and infrastructure provision, for example, wrap and fund supermarket services) take a smaller margin for their commoditised scale offerings.
They manage wealth in an efficient manner for an increasingly sophisticated consumer.
They use technology and infrastructure to create value for their clients and efficiencies within their business.
They outsource all non-core tasks to focus exclusively on the provision of top quality education and advice to their clients.
Source: FP Transitions UK – Adviser Success Survey 2006.
It is likely to be the top two adviser segments (comitted planners and mixed best of breed advisers) that really start to control the lion’s share of the wealth in the future.
Make no mistake, good quality advisers who focus on the provision of advice write an awful lot of business in the traditional sense and are emerging as the preferred relationships for product providers to deal with because of this.
Although they may well constitute a smaller percentage of the market in terms of adviser numbers, the funds under management they control will be significant.
The 80/20 rule will apply as the new approach matures and the business they write and manage is likely to stick, which gives product manufacturers with the opportunity for a high-quality profitable relation-ship that can be managed with significantly less resources than the business-churning environment.
Reflecting on Tesco’s success, it has been the distributor that has become dominant because of its superior understanding of what clients want. If only advice would follow that example.