Investing is complicated and scary. Many indicators point to a burgeoning market for financial advice and rising income for financial advisers since the RDR. Let the good times roll. But for how long?
Platforum research indicates that investors are less likely than in the past to use a financial adviser and prefer to go direct to a platform or to the provider. In January we published research based on a nationally representative sample of UK adults and a deeper dive with active private investors. Investors told us that their use of IFAs has decreased with only 21% saying they had used an IFA to buy investments in the past year compared with 26% a year ago.
And when we ask about planned future behaviour the outlook is even worse for IFAs. Investors have been less likely to say they will take out their next collective investment through an IFA since April 2014, and this year IFAs dropped below bank/building societies for the first time since we started asking the question five years ago.
Enter the banks… Santander has been very vocal about its plans to offer advice in the branch. And a few are sitting on the sidelines to see what the FAMR will say about advice and guidance. Nationwide’s financial planning head, Larry Banda, said at the Altus “Rise of the Machines” event yesterday that branch staff will need to help robo advice clients. This “silicon + carbon” combination is powerful.
Advisers too are looking at ways to reduce the cost of investing, in particular for clients with portfolios under £250,000. In a recent survey we asked advisers if they are taking steps to lower the cost of investing. More than half said they were with increased use of passives and a lowering of their fees the most commonly cited ways to reduce fees.
The big competitor to advisers in the under £250k bracket has been Hargreaves Lansdown. (On that, watch for our latest D2C Market Size and Structure report that will be released on Monday and discussed in next week’s Friday email.) Hargreaves Lansdown’s assets are up as is its market share among direct platforms. Hargreaves Lansdown’s growth is a result of them getting early and disproportionate gains from the pension reforms. This year they made a push to “put the call back in”, i.e. to push closer to advice, and others are following suit.
We don’t pretend to suggest that advisers operating at the high end of the market are feeling much pressure on fees. After all, the very wealthy are willing to pay for premium service. However those in the middle who have been competing with Hargreaves Lansdown – and will increasingly compete with the banks for accounts valued between £50k and £250k – are certainly feeling the squeeze. They will increasingly do so as banks roll out their propositions.
Some advisory firms are building their own digital propositions using proprietary or platform B2B2C solutions, principally for lower value portfolios. We spoke to a firm this week that is developing a digital and phone based proposition for clients with lower value portfolios and are offering tiered service levels and pricing. This can work well in a firm with scale.
We said in January that we expect to see a consolidation toward larger advisory firms and a decline of one-man-band firms. As if to confirm this, in a recent Platforum survey of advisers we found that 40% had not gone through a client segmentation exercise – most of these were from smaller advisory firms.
We will be looking at the issue of the future of advice and future business models for financial advisory firms throughout the year. The subject will also be discussed in our forthcoming Adviser Platform Guide, released in March.
By then, we will have even more newsy fodder for our Friday missives, including the budget, FAMR and much more. Enjoy the relative calm while it lasts!