According to a report from NMG Consulting, just 20% of clients have reacted negatively to the changes, compared to 43% of advisers.
Of course, these types of studies should be taken with a pinch of salt. All of the intermediaries I speak with support a better qualified industry and a ban on commission, even if they remain sceptical about the ‘independent’ Vs ‘restricted’ debate.
It’s another study that’s got me thinking. In Challenge and Opportunity, a white paper on the impact of the RDR on the financial advice market from Cass Business School with BNY Mellon, author Dr Stephen Thomas suggests the industry will benefit from fertile opportunities brought about by an “increasingly financially literate, richer and computer savvy clientele”.
Models under threat
He says clients have already been gravitating towards internet platforms where fees are transparent and low, while ETFs have been threatening to shake-up the role of active fund managers. The pre-existing business model was seemingly already under threat from a range of forces.
“On the demand side, these forces included consumers that were coming to terms with unprecedented falls in real income and wealth and that are beset with a lack of trust in financial markets and institutions, and with little spare cash for savings’ products,” he says.
“On the supply side, these forces include cheap, pseudo-advisory offerings pointing to heavily discounted passive products via the internet; an aging financial advice workforce, perhaps finding the increasingly technical and quantitative nature of financial planning and associated innovative products very challenging, and a regulator that is constantly making public noises about fees as ‘destroyers of wealth’.”
The message is clear – change was inevitable and RDR just accelerated it.
Time to be savvy
From a wealth manager perspective, Lee Robertson, CEO of Investment Quorum, welcomes the challenge of clients becoming more savvy about pricing, and getting real value for money from a service with realistic expectations on returns – in a nutshell the goals of RDR in the first place.
“Clients turn up having done their own research and having formulated their own plan of action,” he says.
“The advice process has become much more collaborative; that’s the way ahead and it can only be positive for the industry.”
Perhaps the biggest threat to advice going forward – and something for the FCA to get its teeth into in the coming years – is the rise of direct-to-consumer and execution-only offerings from fund groups and discount brokers.
On this, the report is clear that advisers “substantially underestimate the threat from D2C offerings” and are “over-optimistic about future revenues from unchanging or slowly changing business models and loyal customers.”
Thomas also says pressure on revenues, together with increased costs will see adviser numbers start to fall once the economic realities of the new regime become more visible.
Won’t kill us off
However, Robertson rejects suggestions that the industry will be permanently damaged: “People underestimate the resilience of advisers who will work with the evolution of the model. Direct sales forces didn’t kill us off the first time around and nor will this.”
Rightly or wrongly, pricing has become the one topic which dominates RDR discussion more than professionalism or client outcomes, particularly when talking about investment products. Robertson defends the funds industry though, or at least those managers that can consistently generate alpha.
“If you only compete on price, you can only go one way which is down, and for that reason we are not keen on super clean-fee share classes,” he concludes.
“If a fund is consistently performing well and delivering alpha, then it’s a premium product that can demand a premium price.”
