More than half of IFAs expect to alter their business models over the next two years, according to research. Henry Brennan asks what's driving the changes and how are advisers adapting?
Winds of change are still blowing through the advice industry. According to research commissioned by Fidelity, more than half of IFAs expect to make changes to their business models over the next 12 to 24 months and further regulatory change was identified as the biggest immediate threat.
The results suggest the majority of advisers consider themselves well prepared for the future, but despite this many are still intent on making changes to their business models in order to best prepare for what lies ahead.
So, what factors look set to influence change and how have advisers elected to respond?
Advice firms embrace change as pressures grow
Increasing costs and time pressures are cited as important factors which may lead many to rely on greater use of model portfolios and managed fund solutions, according to the results.
Fidelity head of intermediary Jon Everill said: "In terms of what steps advisers might have taken to futureproof their business, I think that is all about system and process. It is about doing things in a more systematic way to ensure the approach for every type of customer is the same.
"The best way to futureproof your business is to make sure it is very systemised and the processes are right. Model portfolios and managed solutions might be another extension of that.
"If you have part of an investment philosophy which says we will use model portfolios for these types of customers, having that whole thing thought through, written down and made available to customers in advance is really important and the best way to futureproof your business is to do that."
The survey found that more than half of advisers increased their use of model portfolios and/or managed solutions over 2013, with all indicators suggesting this is a trend that will continue into 2014.
Phil Billingham Partnership director Phil Billingham said another area IFAs are focusing on is the winding down of trail commission.
A ban on pre-Retail Distribution Review (RDR) trail commission would have the potential to make business unsustainable for nearly half of advisers, according to recent research from GfK and Panacea Adviser.
The Financial Conduct Authority (FCA) raised concerns over the lack of an end date for the payment of trail commission in June and shortly afterwards published guidance for investors on the various ways to stop paying it.
Billingham said: "Trail commission is a mixed bag. We have firms at the moment in the process of lining all their client affairs up, moving into adviser charging and making sure they are all in the right share classes.
"Others do not know where to start. With some old legacy firms, the only way it is going to get resolved is if there is a takeover or hiving off client base. I expect to see some advisory firms a year from now being up against it and that is going to influence the value of those firms at the same time so we can expect some cheap sales then too."
Billingham said some firms will depend on becoming more focused on separating product from service and taking a more niche approach to advice.
He said: "It is about a clear focus on a niche and an ability to deliver services to that niche that are only indirectly to do with product."
Yellowtail Financial Planning is one IFA firm that has previously adopted a more niche approach to advice.
Yellowtail chief executive Dennis Hall said: "When we did a client exercise three or four years ago, we found that between 30% to 40% of our clients were widows. We looked at what we were providing and what their needs were.
"We were doing a lot of work with widows but it was generally firefighting because they would come to us after bereavement. What you really want to be able to do is to make sure those problems do not arise in the first place. So it has gone right back to general financial planning but at the point where it is needed most which is pre-problem."
Hall has outlined further planned changes to Yellowtail's business model that will be implemented in stages throughout 2014.
He said: "From a business perspective, we are trying to focus on 90-day projects that flip between marketing and promotion in the first quarter and the third quarter and improving the operations efficiencies in Q2 and Q4. To keep the team focused, we have introduced a 90-day focus.
"It is very early days but we are much more focused and aligned as a consequence."
