Banks are heading back into the world of advice but a culture clash means IFAs should not feel threatened
It is interesting to see how many banks, asset managers and discretionary fund managers are moving into the advice space. Some for the first time. Others, with hope winning over experience, for the second or even third time. It is not hard to understand why.
First, pension freedoms. These have created a new trillion-pound market where advice is an essential component of the proposition for affluent and high-net-worth consumers. I think some of the new players will get this right and, over time, create powerful competitors to owner-managed advice firms.
Secondly – and specifically for the majority of DFMs and asset managers – propositions are under threat from the exponential rise in index-linked funds. They stand very little chance of making money from these price-sensitive vehicles.
Vanguard and Blackrock have roughly a 75 per cent market share between them and an oligopoly, or even a monopoly, seems inevitable. Hence the need to move into new areas of the value chain.
Of course, some of the organisations now intending to offer their services directly to clients will be biting the hands that feed them. Without doubt, they will have considered the consequences of this. But, equally, they will be aware that most advisers currently using their services have been reviewing performance through an increasingly short-term lens and they need access via other channels to protect their revenues.
Brewin Dolphin seems to be leading the advice charge at the moment, but many others are pursuing similar strategies: Schroders, Seven IM, LGT Vestra and Rathbones, to name just a few.
Running money and providing advice are very different. The former is an industry; the latter a profession. But there is something perhaps even more important: running money is not usually a client-facing role. It is primarily analytical, and so are most of the people looking at the screens.
Of course, advisers have to be analytic, but they also need other competences such as empathy and ability to gain trust and build strong relationships. To become the trusted adviser.
Which reminds me of a small piece of work I did for a large high street bank attempting to reinvigorate its wealth management proposition ahead of the RDR.
The brief boiled down to “we want to be trusted advisers”.
As usual when doing this sort of work, the first step was defining the people, processes and the technology required for the desired end state, then creating a high-level business case. The problem in this case was the culture, in particular the management.
They seemed to think that if they positioned themselves as trusted advisers, they would somehow become trusted advisers. So we ran a session to try to demonstrate what such a person might look like.
I knew many people I would describe as trusted advisers but had no difficulty deciding exactly who to approach: Prescient Financial Intelligence managing director Chris Woodhams. It was an interesting morning.
Chris kicked off with a description of his business and took us through the numbers. Then he set about trying to explain its culture. I noticed my client was looking puzzled and so did Chris. So he changed tack.
“Perhaps there is a better way to explain how we do things,” he said. “A couple of weeks ago, I had a first meeting with a new client. He was just about to retire, having been a senior executive in a FTSE 100 company after working himself up the ladder over 40 years. What do you think was on his mind? What do you think we spent most of our time discussing?”
It took a few minutes before anyone ventured a guess. “He was worried that his income wouldn’t be sufficient?” That was not his problem, Chris said. He had a final salary pension scheme which would be more than adequate.
“Was he worried about inheritance tax?” A bit but not really, Chris responded. “Did he want advice on his other investments?” Eventually, yes. He had a portfolio but that was not what was on his mind.
After a couple more questions, the client team sat back looking even more puzzled. Chris smiled and said: “The thing that most worried him was being retired. He had never been retired before. He had no idea what he was going to do being underneath his wife’s feet all day.” Chris continued: “We had a good chat. I knew many clients that have retired and we talked about what some of them have done. For example, using tax-free cash to build a home office. Maybe doing some charity work.”
“Yes. But what was the outcome?” asked the client. Chris replied: “He said he would like to meet up again and I agreed it would make sense. He is now a very valuable client.”
My client frowned. “Sorry, but I don’t think that kind of thing would work well for us.” Chris smiled and said: “You are probably right. After all, you are a bank.”
Malcolm Kerr is an independent consultant