Expect exodus from large WMs to continue

Financial services professionals will continue to leave wealth management heavyweights in favour of the relative freedom of smaller firms, according to IFP chief executive Steve Gazzard

Expect exodus from large WMs to continue

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Post RDR, wealth managers have had to contend with greater regulatory scrutiny and battle to maintain business viability, and Gazzard predicts further movement as advisers seek a supposed less-restrictive IFA environment.

Recent examples of big industry players losing staff to small and mid-sized operations include Gareth Dyer exiting Brewin Dolphin to head up James Brearley & Son’s Kendal office in March, and Jonathan Holland and Robert Websdale leaving Barclays Wealth for relationship manager roles at Julius Baer the same month.

“Since before RDR, while the number of advisers has gone down slightly, the number of smaller firms has gone up,” Gazzard said. “We will see more people breaking from the large groups to go and form their own propositions.

“If you are employed by a large firm there are more mandates and restrictions, and some people will want to have more flexibility as well as adding value to their own business. There is a desire to have real control over how they work with clients, build value and, ultimately, of their own destiny.

“In larger businesses there certain areas that are restricted – the philosophy, the proposition, the range of products on offer, the charging structure, how the ideal client is defined. Also, people do not want to be in a business where someone else can do something stupid that will impact them.”

With the financial crisis still fresh in clients’ minds there is rising demand for closer adviser-client relationships that are more tailored to personal needs. Gazzard said this demand could be the catalyst for a split in business propositions, with larger firms heading down the discretionary route.

“When it comes to building scalable models and replicating the process across a larger business, it makes sense to have a discretionary management service,” he said.

“Larger firms are increasingly being asked to monitor what is happening in their businesses, so I can see them going down the discretionary route so they have greater control and can reduce risk. Some people believe that they can scale model a proper financial planning business, but it is very difficult to do.”

However, Gazzard warned that for smaller companies, getting the right balance between customer focus and product sales is imperative to avoid coming under pressure from increasingly competitive fees.

He expanded: “The important question, particularly concerning fees, that firms should be asking themselves is whether they are an advice-based or a product-based proposition. Historically, a lot of advisers have had a product-based proposition.

“Post-RDR it is very difficult to move away from that. A lot of advisers think they have an advice-based proposition, but when they are getting most of their income from transacting product and managing money as opposed to giving advice, there is a question to be asked there.

“Nowadays there is more take-up of cash flow. Some people are seeing that as a service, but it should integrated into the advice process rather than being separate. Advisers that have taken a lot of money based on product sales are going to come under pressure from fees because they cannot justify what they are doing.”