Advisers' business models have already changed dramatically in the last 20 years, Clive Waller said, as he highlighted five areas where this would inevitably continue…
The CWC Research managing director spoke at PortfolioMetrix's ‘The Mix Forum' event, saying research with the lang cat had demonstrated change was needed in certain areas of the advisory business.
Here are five points Waller (pictured) picked out:
1. Investment decisions
The research found a decreasing number of advisers made their own fund selection decisions. Instead, the majority left investment decisions to an internal committee.
Waller said: "This makes me very nervous. Though an investment committee can be very good, there are committees that are made up of financial advisers.
"Generally, unless they are geniuses, advisers don't have the time to do all they need to do and run the money."
According to the findings, 85% of advisers measured risk with the use of a tool and 52.2% had conversations about risk with clients.
This suggested almost 48% of advisers relied solely on a risk tool, Waller said. But advisers need to have conversations with clients to clarify anomalies provided by risk profiling tools, a point also raised by former regulatory technical specialist Rory Percival in his speech at the event.
Waller said: "The regulator doesn't want you just using the risk tool, as some of them don't work well enough."
3. Fee model
About 40% of advisers now charged on a fixed fee basis for initial work following the Retail Distribution Review (RDR), said Waller. In addition, 7.5% of those surveyed by CWC and the lang cat said they charged flat fees for ongoing work.
"I think there is an argument for ad valorem charging - where it is based on the value of product or service - on the investment side of things but not on the financial planning side," argued Waller.
Waller believes the number of advisers offering flat rate ongoing fees will only continue to rise as the regulator "further insists" on transparency.
The research found 62.5% of advisers did not have a succession plan.
Waller said: "This is worrying as until the turn of the century advice was transactional, now it's a service in planning retirement.
"It's the first time we're seeing a longevity of the decumulation of assets and the last thing you want to do in retirement is search for a new adviser because yours has retired."
The free digitisation of processes such as fact finding and cashflow modelling means the adviser can no longer justify charging for the manual process, said Waller.
But he argued free technology, such as cashflow modelling, may actually encourage the client to talk more with their adviser about the important lifestyle issues, rather than take away value from the adviser's business.
He added: "This may be a good thing or a bad thing but the adviser needs to be aware of it."
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