Countdown to Extinction
When was the last time you referred to yourself as a financial adviser? Financial advisers existed in the late 80’s and early 90’s as the gate-keepers to financial products. They all died out like the dinosaurs did, or were forced into the slavery of their vertically integrated pay-masters.
Financial advisers were the recommenders of life assurance, mortgages, PEP’s and Pensions; paid for selling products. They assessed the complex product charges and the past performance. They simply ran a beauty parade of a customers potential Insurance, Mortgage and Investment suitors. They compliantly offered a range of three alternatives and then ‘allegedly’ recommended the one that paid the adviser the highest commission. They made the introduction, they made their money and then they made off. Much like the Viz character “The Independent Financial Adviser of the Lamp”.
Now there are less types of financial products in existence, all with simpler charging options. High charges have been capped and some complex product charging structures have been banned. Providers continue to exit the UK market as the margins get skinnier and both the advisers and the customers get smarter.
High charging products stand no chance of sneaking through, they will be exposed by simple to perform on-line searches. Now a 10 year old could find you the best cash ISA in about 30 seconds. Obviously the answer is Google, now what was your question?
In the end all that will be left on this planet will be cockroaches and Insurance Salesmen/IFAs/Financial Planners/Financial Life Coaches. You get the picture, those of us who can adapt to continuous change. If you continue to operate in the investment world today, you can’t just flog a product for gain, you must offer a long term service. You have to “add value”. (I hate that phrase and cannot believe I have just used it).
Ok, let’s dust off the crystal balls and predict the causes of the next bout of extinctions.
Purple Bricks is disrupting estate agency businesses in the UK now. It a business model that will ultimately see them off. Betterment in the US is already gaining traction. We won’t be able to charge much for a job that can be completed for free by an algorithm in the future. No profession will be safe. Many mature UK financial businesses will be slow to go. 75% of the UK’s investable assets are in the hands of those 55+. Many still have an anxiety attack when you mention investing via a computer. It will be difficult for them to adopt the latest technology.
But let’s look at me as an example. I’m 54 and three quarters years old. My first operating system was MS-DOS. Me and Windows go back to 1995. 20 years of pointing and clicking. I’m oldish, but still very technically competent. If I was not in the business today, would I use an adviser? I’m sad to say that I wouldn’t. I’m not alone, and many people younger than me spend more screen-time today than they do sleeping. The smart phone and Uber killed-off taxi firms, the smart phone with Fintech will surely kill advice firms.
I’m not a conspiracy theorist. But I do know that there is a huge alien outpost on the dark side of the moon and they are holding Elvis, Shergar and Princess Di captive. On the weekend of the EU referendum I thought they may have nabbed George Osborne too. Now you don’t need to be paranoid to believe our regulator has got it in for small financial advice firms. The FCA must believe that they can control financial advice on-line easier than trying to control all of the thousands of financial advisers who give advice individually and record their recommendations on paper files. The FCA and the Banks are achieving control, bit by bit, by dumbing down financial products, making on-line robo-advice take-up much easier. For the vast bulk of the UK population the only products that matter today are an Auto Enrolment pension via Nest and an ISA. I know there are now NISAs, JISAs, HTBISAs and maybe next year LISAs, but they all share a common simplicity thread. No capital units, no early redemption penalties, simple tax consequences and of course capped charges with default funds.
Ever since stakeholder and CAT products the direction of travel for products has been clear.
I’m still upbeat.
Like fellow Nucleus users I am 100% confident in the near future. I think my business will continue to remain safe, but I know I couldn’t achieve the success all over again today. How do you become like H.J.Scott & Co today? It’s easy. You just need to have started out almost 30 years ago. (hat-tip to Lucian Camp)
And what’s my point?
The insurance companies are morphing into wrap based investment management businesses. Vertically Integrated Firms only make money through investment management, their “partners” division loses money every year, hand over fist. Many networks are becoming investment managers. Some platforms are investment managers. IFA consolidators are closet investment managers. A small number of IFAs are becoming investment managers. Discretionary Fund Managers have always been just investment managers, it’s just now there are more of them than ever before.
The future is for the Investment Managers who manage assets and don’t need to recommend products. It is only a matter of time until product recommendation and cash flow modelling is offered for free by all Investment Managers.
You don’t believe you too can manage investments? You already run centralised investment propositions and rebalance regularly to keep your Model Portfolios in line. Haven’t you always done the job anyway? The journey to Investment Management is long and hard, but your long term survival may depend upon it.
Take control of client returns and the client will always return.