In 2012 the advice market entered a new era, which saw the decline of many large IFA networks along with the banks exiting the market completely. This meant we saw a drastic decline in the supply of advice, which was soon to be met with an increased demand thanks to the radically altered retirement landscape.
With the advent of Mifid II, which will be providing retrospective disclosure next year, we are now entering the age of transparency. The new disclosure rules have the power to disturb customer relationships and are likely to be seismic and impactful for every corner of the advice profession, given that they arrive at a time when we face market uncertainty ahead of Brexit, and there is already a feverish distrust in financial services and institutions.
Research by Deloitte for Quilter looked at how people would react to seeing how much money they have paid for advice, product and investment management over the past year in pounds and pence.
Deloitte showed advised consumers a generic mock-up of a Mifid II disclosure documents that displayed a moderate fall (<5%) in portfolio value, and asked them how they would expect to respond when they received them. They said the following:
- 71% said they would want a more meaningful conversation and ‘ask my financial adviser to explain’
- 70% said they would go off and ‘do some research on alternatives’, possibly for the first time, to try and understand the information better
- 33% said they ‘would not invest in this fund’, and possibly consider changing their platform or fund manager on the back of receiving the disclosure document.
The problem with the Deloitte research is that people were given the disclosures but were provided with little or no context and had no one to position or explain the information. It demonstrates that, as an industry, we need to do more than just disclose information: we need to engage and educate.
Importantly we need to be able to articulate the decisions that have been made and the value that advice is adding. This involves going back to the basics of what advice offers. It’s about taxation, investment choices and how you help your clients navigate emotions and the practicalities that life throws at them.
These basics combine to offer a measurable, quantifiable difference that advice delivers compared to consumers who attempt to do it themselves. Soon Quilter will be rolling out this equation which is based on robust academic assumption. This will allow advisers to put a numerical value on all the elements of service they provide.
Advice businesses have proven to be highly resilient to change. They sit at the heart of communities and there is a growing demand for their services, and I am confident that the strength of their client relationships combined with an ability to demonstrate the value of advice will mean the sector will continue to thrive and grow.
But as we enter the new era, our ability to articulate the basics are going to be the best tool we have to minimise Mifid’s disruption.
Andy Thompson is CEO of Intrinsic, part of Quilter
