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Adviser opportunities require new ways of working

Massive opportunities are opening up for advisers but they need new, technology driven, ways of working with clients, Ben Goss, CEO of Distribution Technology tells ABR editor Rob Kingsbury

Ben Goss, chief executive of Distribution Technology, believes the 2014 Budget has opened up massive, and as yet underestimated, adviser opportunities. However, if advisers are to take advantage of this situation, he says, they will require new ways of working and a radically different approach to the manual processes and disjointed technology currently employed in the advisory market.

“There is no doubt that the demand for advice will grow dramatically over the coming months and years because of the pension rule changes announced by the Chancellor in this year’s Budget,” Goss says. “Demand was already growing because of the country’s demographic profile, with the baby boomers retiring and needing to find a home for their money. Now, of course, without the certainty that the answer to retirement income is going to be an annuity, more people are going to need advice. That is massive and I don’t think people yet have understood just how dramatic a shift that will be – for both advisers and for consumers.

“Now there’s a range of questions that every retiree with a reasonably-sized pension pot should consider. Should they drawdown? Should they take an annuity in part? What other options might there be coming to market? Importantly, they’ve got to consider the risk if they’re not going to put their freed up pension cash into an annuity. How much risk can and should they take? They’ve got to think about longevity; will they outlast their money?”

Overall, it’s a big set of decisions that the individual is being asked to deal with and they’re not easy decisions to get right, Goss says. “Hence, as they think through those issues an increasing number of people are going to realise that they should seek advice.”

Opportunities hindered by manual processes

This is where the opportunity lies for financial advisers. Yet, Goss highlights, while demand for advice is likely to increase substantially, the supply side of advice is heavily constrained at present. The past few years have seen the advisory market reduce in size to around 22,000 qualified advisers and a shift in focus of many adviser firms towards serving only high net worth clients.

“But there is another issue,” Goss says. “The advice process is broken right now because it is very manual. The way that most adviser businesses operate means it can typically take many hours of adviser and paraplanner time to deliver advice to a single client. As a result, we have a situation where it is simply not economical for advisers to serve clients with case sizes of less than a set amount of assets or fee income. The cost of ensuring the client is getting the right level of service and that their portfolio remains suitable has to be met by the fee – as well as being demonstrated to the regulator. In a heavily manual world this is very costly and very risky.”

Scalable, efficient, profitable, lower risk business

In order to take advantage of the opportunities being presented to them, adviser businesses need to move beyond these restrictions, Goss suggests. “This is only going to be achieved by using end-to-end technology to deliver consistency within the business. Through consistency, comes the ability for advisers to deliver a scalable, efficient, profitable, lower risk business to a far larger range of clients. To deliver that consistency an adviser needs two things. First, a process or software that runs end-to-end; secondly, a methodology that runs end-to-end too.

“But so much of what happens in the market today doesn’t do this. Firms have a risk profiler on one side, an asset model on another, a portfolio committee which is building investments on another and the product provider or fund manager doesn’t talk to any of those sides at all. This creates a disjointed process, where some manual intervention is inevitable, immediately creating inefficiencies and costs within the business.

“With a single process or piece of technology used throughout an advisory business, you’re building in what we term ‘asset model integrity’. This is where the model used to review your client is the same as that being used to review your investments and the same one that will be used to review ongoing suitability. It’s applying a consistent approach all the way through the business,” Goss says.

Importantly, this is the way the regulator is moving, he adds. “The FCA started by looking at suitability at the point of advice, and is now moving downstream, looking at the ongoing suitability of investments and the fund risk profiling of investment as well. And they are saying that best practice for this requires an ‘apples for apples’ comparison.”

Furthermore, by streamlining the process in this way, it is possible for a firm to deliver quality service to a broader range of clients.

Opening up to new ways of working

In this respect, what advisers have to open up to is the idea that they don’t have to do everything for the client, says Goss. Enabling the client to conduct some simple research themselves but for the transaction to be undertaken by the adviser, relieves the adviser of the need to get involved in every part of the portfolio and yet allows them to remain in overall control. For example, the purchase of funds under the annual ISA allowance.”

Goss explains: “Imagine that a client can access an online portal under the adviser’s brand where they can do a risk profile online and choose their ISA fund from a selected universe. This can then be synchronised through the system so the adviser can complete the advice case, issue a suitability report, undertake the transaction for the client, adding it to the client’s overall portfolio, and make an aggregated view available to the client.

The process, plus the time and cost savings to the advice firm, can allow the business to start scaling up to take on new clients who may need advice for some elements of their portfolio but are confident in managing other elements themselves through the adviser portal. Furthermore, because their portfolio is held under the adviser’s brand, when they have more complex issues the adviser firm becomes their first port of call.

“Many adviser firms are already getting to grips with this,” says Goss, “They are embracing end-to-end technology from the moment they engage with a client and then servicing the client online or via mobile technology. So, once the adviser has submitted the plan and it is sitting on a platform, a consolidated view can be seen by the client using an App or online and the client can then interact with it and use tools to monitor their portfolio, see the risk they are taking, and undertake a risk profile. Because the whole process has been undertaken in a consistent manner, the adviser has an environment which is much more efficient and reduces the risk of servicing clients.”

End-to-end servicing, managing clients assets in a consistent manner and with a consistent approach to risk and suitability is not just opening up opportunities for advisers, Goss concludes, “it is absolutely critical for advisory businesses if they want not just to survive but to thrive in this developing marketplace.”

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