The advice industry is paralysed by a fear of doing wrong, which has led to a "commoditisation of investment solutions", Ashcourt Rowan chief executive Jonathan Polin has said.
In a speech at the Defaqto investment outsourcing conference on Tuesday he said that the industry was increasingly acting "like a rabbit in the headlights", basing investment decisions on previous outcomes "that may not be relevant today".
He also warned that the "perfect storm" of recent years has lead to an increasing use of passive investment solutions, which may seem cheaper at a time when advisers are "disillusioned with the returns of actively managed funds".
However, Polin (pictured) said: "I personally have concerns over passives, I believe that they are more difficult to extract the risk and return requirements.
"I also think that in the market there is a misconception that passive instruments automatically equal a reduction of risk and I think there is also a misunderstanding that our mainstream indices are market-cap weighted. [This] really means that the larger companies have a much bigger representation on the indices.
"These are companies who maybe have had significant performance to have gotten there or they are in a post growth period, which automatically leads to the fact that they may grow more slowly and therefore may actually be building in underperformance."
Polin suggested that old advice models, which are based on finding solutions in-house, have become unsustainable.
Changes in the way the sector is regulated, he said, have brought on extra levels of research "to really ensure that what we are recommending to our clients is really absolutely better than what they had before".
The value of advice, he said, has become "greater than ever before", so advisers should look at "doing what they do best" by outsourcing their investment solutions and focussing on spending time with their clients.
"The dynamics of the new world, where we all realise that the state isn't going to be there, means that the requirement for advice is ever growing. And the complexity of solutions really require that advice," he said.
He added: "I do not believe for one minute there are people in this country who would use a direct to consumer platform when they come to the annuity that is going to pay them their income for the next forty years."
Consider the fate of Blockbuster
From Allen & Overy
More focus on global equities
PA360 – 24 April 2018
Plans to hire more advisers