by Ian Hudson, Business Development Manager, Abbey for Intermediaries
 

Ian Hudson, Business Development  Manager, Abbey for Intermediaries

There is a tidal wave of change heading towards the financial services sector bringing additional responsibilities to IFAs and everyone involved in providing advice, whether that is for protection, mortgages or insurance.

Despite what seems like whole rain forests being sacrificed in the name of consultation, there remains a significant divergence in terms of awareness and preparedness with advisers falling broadly into one of three camps.

In the first there are those who have not yet begun to consider what changes they are likely to have to make to their business as a result of regulation, we’ll call them the “here and nows”.

In the second there are those who are already taking the initiative and making changes that work for their business ahead of CP3/04 and the increased regulatory burdens that will fall on financial advisers, we’ll call them the “forward thinkers”.

Then there is a final group who see legislation and regulation not as ends in themselves but as catalysts to further, perhaps more fundamental, changes that can improve the profitability of their business. This group we’ll call the “revolutionaries”, because the steps that they are taking will indeed revolutionise their business.

The revolutionaries in this tale are the ones considering adopting a wrap strategy for their business. Whilst still in their infancy in the UK, there are some IFAs who have been adopting wrap-like behaviours for years, consolidating statements, calculating valuations, and producing review documents.

The Abbey Wrap, which launched in September last year, has already made inroads into in certain segments of the adviser community who recognise that a fee-based business will provide a more sustainable future than one based solely on commission.

The reality is that in the UK the industry has been dogged by expensive legacy IT systems, unable to cope with the demands placed on them. Australia, where wraps began, has fared better exploiting a more flexible business model , while in America, economies of scale have meant that change was instigated by the free market and downward cost pressures. But those in the revolutionary camp have grasped the new technology offered by wraps with both hands, and have found a new and better way of operating their business.

Secondary, positive effects have also seen some business owners having the time and inclination to consider the implications of the CP3/04 that sets out the details to be contained in the menu and the methodology for cost comparisons.

CP3/04 is likely to mean that the “here and nows” will almost certainly be unprepared for and, in some cases, even resistant to comparing themselves against a market average for each type of business. Not only will they have to compare themselves against their peers on cost but also they will have to update this cost comparison regularly as the figure changes.

One of the potential knock-on effects of this is the bucket-shop syndrome, where advisers compete on price, which can force the market average downwards. Similarly, when advisers realise that this competition is not profitable, they will either drop away, or start to raise their prices. But for the revolutionaries there is a different approach.

The revolutionaries have grasped the new technologies and are conducting their business reviews now. They are likely to be asking themselves searching questions about the long-term ethos of their business; the sort of questions they might well have asked when they first went into business as an IFA.

The nature of the answers which manifest themselves are characterised by words and phrases like quality, value for money, and advice-driven, rather than administration, regulation and compliance.

These IFAs know what they want; they have already taken the first steps in controlling the direction of their business. They may even have subsequently begun to take on more challenges, like marketing and attracting new clients. The focus is now on giving quality advice in a value for money environment for the client, whilst running a profitable business for themselves.

This group of IFAs does not compete on price, indeed they are competing on everything but price. They are prepared to answer questions about how much advice costs, but they are less likely to face objections to these costs, as the quality of the advice is the over-riding priority from the client’s perspective.

So where does that leave the “here and nows” and the “forward thinkers”? Well it’s not too late for either camp. For the “here and nows”, who have not yet considered the future shape and direction of their business, now might be a good time to start.

And the “forward thinkers”? well it shouldn’t be too much of a stretch to take the next step and consider exactly how they will compete in the new world, rather than focus on proposed legislation as the primary driver that defines how their business should adapt.

Personally, I’d like to see every IFA become a “revolutionary” who overtakes legislation, and is well prepared for the regime that will follow when legislation is enacted.

About Ian

Ian Hudson has 5 years experience in the financial services industry, firstly selling and advising, and now works as Business Development Manager for Abbey for Intermediaries. He also takes a keen interest in politics and regulation and how these impact on the business community. With a degree in Environmental Science, he is able to focus on the underlying problems businesses face, working towards solutions, which provide a framework for continued success, rather than end-of-pipe fixes.