AN OVERVIEW OF THE CHANGING SHAPE OF THE ‘IFA’ WORLD AND THE COMMERCIAL OPPORTUNITY IT OFFERS WEALTH MANAGEMENT

Headlines:

• Following the Retail Distribution Review, the tectonic plates of advice and investments shifted radically. The interest in upgrading the client base to a higher minimum asset level is intense.
• Roundtable participants discussed the shift in product trends following the introduction of structured fees for financial advisers and the products that advisers now want from wealth managers
• Brexit led several wealthy individuals take money out of the UK, and redistribute into European markets.
• Whilst UK property had been booming in recent years, the industry is seeing a lot more diversification since the referendum as investors seek to minimise their risk exposure.

 Key issues and challenges:

• Adviser business models more specifically have been transforming at a rapid pace, and the industry has witnessed a substantial shift towards outsourcing investment offerings.
• The intermediary market size is growing and has hit the £1.5 trillion figure, continuing on a 6% growth rate
• Data shows that vertically integrated firms are one of the fastest growing segments within this sector, and other IFAs are underperforming. What does this mean? In a nutshell, the industry is facing a huge period of change.
• In 2017, data shows that minimum asset sizes for new clients have been reduced – but advisers implementing minimum asset levels have increased.
• Increased client segmentation and robo-advice channels have played a role in this. There is concern that this may widen the already considerable advice gap as clients seek a cheaper alternative solution for their investment requirements.
• Fees are creeping up and a growing proportion of advisers are now charging clients a percentage of assets under management. Portfolio outsourcing continues to grow, with more advisers outsourcing more of their assets.
• Participants of the roundtable opined that they have been seeing less people using traditional multi-managers and multi-asset funds. There is much more of a focus on outcome-oriented products. The number of financial advisers shrank rapidly following the announcement and implementation of RDR, although this has now since stabilised.
• The impact of political and social change has had a dramatic effect on the peaks and troughs for this advisory community.
• Alongside this wavering uncertainty in the success of British markets, comes an increasing interest in passive investing.
• Firms are under pressure to reduce costs, and many modern portfolio services are beginning to use passive investments whereas previously they had used active vehicles.
• Because clients are much more aware of the total expense ratios than they used to be, UK investors are beginning to replicate American passive investment trends. And as a result of this, charging needs to be very transparent and appropriate for each and every client: Clients who do want to continue using passive investing however, the explanation for this is most likely to be echoing the digital opportunities offered through robo-advice and their cheaper associated costs.

Conclusions and Solutions:

• Brexit has set the scene for the changing IFA community this year, causing some concerns and rifts in the shifting marketplace.
• Increasing numbers of advisers charging clients a percentage of assets under management.
• Portfolio outsourcing also continues to grow, with more advisers outsourcing more of their assets – all types of DAM continue to benefit as a result.
• The impact of RDR is interpreted relatively positively and demand for passives is continuing at a steady pace, but allocation weightings remain relatively low.

 

Expert: Phil Middleton, Schroders 
Facilitator: Laura Cavacuiti