Consultancy firm Harrison Spence director Brian Spence looks at how advisers can learn from the high street - and the path providers at a crossroads should take.
"Financial advice on the high street is fast becoming a thing of the past.
The internet killed Comet, Jessops and HMV. For the banks, building societies and their insurance-company partners, regulation poses a similar-size threat.
Senior people in big financial services firms are just too scared of the risks associated with providing advice to the public. They can't see a way to make sustainable profits.
Bigger, better, brighter ways of working
As a result, many of these firms are introducing high minimum client thresholds. Others - including Santander, Axa and Barclays - are exiting the retail market entirely.
For specialist financial advisers, this is a huge opportunity. Demand for advice remains strong, with ‘orphaned' clients seeking new loving homes.
Over the past six months, this has led to a surge in new client enquiries for many IFAs, providing (at last!) some upside from all the regulatory upheaval.
How can all advisory firms benefit from this trend? One way is to learn from the high street players themselves.
At their best, they combine strong brand positioning with high levels of visibility. This, in turn, drives local awareness. Smaller firms can apply many of the same techniques, and achieve great results even with limited marketing budgets.
The opportunity for asset managers and life insurers
Much of the attention has focused on advisers losing a chunk of their revenues, and on free training and seminars that now need to be paid for.
Yet providers also face a very big challenge, and asset managers and life insurers are now at a crossroads.
They can continue along the path they know, relying on adviser incentives to fuel distribution, risking fines or worse from the regulator.
They can turn left, tweaking existing models, removing formal payments and providing free services with no strings attached. This may overcome regulatory problems, but it won't be commercial: down this path, there is little scope to ensure advisers actually refer any business.
Finally, providers at the crossroads can turn to the right, and explore new ways of working with the adviser community. We believe this is the only sensible route for providers: the RDR presents a much bigger threat to distribution than most seem to realise.
The good news is that there are sustainable, profitable and compliant models that asset managers and life insurers can develop. Each involves closer formal partnerships between providers and advisers.
Advisers and fund managers have a suitability problem
Advisers and fund managers have a suitability problem. In the new world, co-operation between advisers and fund managers is the way forward.
The FCA is nudging advisers to specialise in serving clients, leaving investment management to the DFMs.
But new partnerships are blurring the edges. And very few have a clear understanding of where responsibilities lie, particularly when it comes to suitability. This has the potential to be a huge headache.
For example, in the strictest sense, there's no such thing as outsourcing for advisers, just a variation of responsibilities. Every adviser needs to document this. Just accepting a DFM's standard terms of business is no longer enough to prove due diligence.
But what if every advisory firm creates and insists on its own terms of business? This would be a nightmare for DFMs, across new and existing adviser relationships.
At Harrison Spence, we believe there is scope to create model terms of business, acceptable to advisers, DFMs and the FCA. In time, these could become standard across the industry, saving a great deal of time, effort and a fortune in legal fees."
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First mentioned in Cridland Report