FE head of research Rob Gleeson examines how advisers can avoid being seen as a spare part in an outsourcing arrangement.
It seems the dire warnings of an adviser exodus post-Retail Distribution Review (RDR) have not come to pass - at least judging by the latest figures.
Research conducted by Cass Business School for BNY Mellon found the number of practitioners has held up surprisingly well. In fact, the research found a remarkable lack of insecurity among advisers about their businesses viability.
Unfortunately, I agree with the researchers that advisers may be underestimating the challenges facing them, as there are still plenty of obstacles to be tackled by those who have survived.
Tips for staying on top of your outsourcing arrangement
One of the ways the profession has been adapting to the new challenges it faces is to move down the route of financial planning.
This approach makes the adviser's understanding of, and empathy with, the client's life situation and goals central to their job, which is an excellent way to add value to your whole proposition.
It is particularly important that advisers can offer value to their clients over and above what they can find for free online or in the media.
It is so easy to research and buy a portfolio of funds today that it is critical advisers work on what they can provide that a free checklist or recommended list cannot.
The pressure is on to get clients but the pitfall to avoid is of depersonalising the service you provide, so that the end result is a client who feels he might as well do it himself.
This is one of the problems of using a discretionary fund manager (DFM) and it was interesting to see the survey show that only 23% of advisers have chosen this route.
This is one way to paint yourself into a corner and risk seeming an irrelevance in the eyes of your client.
More and more clients coming in have done their research and are less likely to be convinced by an adviser who palms them off to someone else for fund selection.
Given the availability of free information on the internet, the situation would end up being that the client was investigating the funds and the DFM was investigating the funds - with the adviser stuck in the middle.
Advisers need an outsourcing solution that saves them some of the leg-work but keeps them involved with clients.
The growing education of the client needs to be made to work for the adviser rather than against them. This is why it is so important that the client is involved in every step of the process, rather than blocked off from the final stage of fund selection when the adviser or DFM goes behind the curtain to do his magic.
The only way the advice industry can survive in the future is by becoming more of a collaborative process, where the adviser listens, encourages and suggests rather than lays down a final answer to everything. An outsourcing solution needs to foster this collaborative structure, providing the adviser with the tools to engage with his client and facilitating dialogue between them.
Society is changing and the industry must change too. People do not simply accept what they are told and given anymore and a business model that makes them feel excluded will struggle to survive.
According to the Cass research, it seems advisers are looking at things in the same way.
When asked what was going to be the chief role of the adviser in the future, only 5% said fund selection, 39% said financial planning, while 56% think both financial planning and fund selection will continue to be equally important.
This has to be right: as an investor, your line of thinking takes you from your circumstances to your needs to the funds available and then back to what you can reasonably expect to achieve and with what level of certainty.
It is not simply a matter of a two or three step process that can be carried out in an identical fashion for each person, but an ongoing dialogue that requires regular attention.
The main challenge for advisers will be maintaining this level of personalised service, which is what they excel at, but within a reasonable budget.
Outsourcing can provide that if it is pitched at the right level: as a tool for allowing informed discussion and agreement rather than a way of hiding the technical side of things behind a screen.
That is just not going to wash anymore. Society has changed and advisers need to be swimming with the tide rather than against it.
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