Today, there are a number of major initiatives that are shaping the financial services landscape. These include RDR, auto-enrolment, guidance v regulated advice, robo-advice, as well as the government objective to increase individual savings for retirement. All of these measures change the working environment of financial services and make it increasingly difficult for businesses to identify a scalable and profitable business model that fits with these trends.
As such, Clapton Consultants urges financial services firms to adapt their business models so as not to fall victim to the changing outlook. Here we highlight the key issues associated with increased regulatory burden and offer guidance on how to resolve them.
Increased regulatory burden
Many UK asset managers are suffering due to the growing regulatory burden and increasing scrutiny on charges and as a result, are using cash to buy distribution. However, this strategy means that it is no longer sufficient to collect funds passively through independent financial advisers, or to acquire assets by peer to peer acquisition or merger. Both of these ‘tried and tested’ models do not account for the new assets that the government wishes the private sector to acquire and are therefore, no longer fit for purpose.
A new approach: return of the integrated business strategy
These businesses should consider a new approach which represents a return to the old strategy of an integrated business that has control of a sales force that will concentrate on distributing regulated products to retail customers. Control does not necessarily mean total ownership, rather obtaining a significant influence over which products are offered. These products will meet the suitability checks for the new savings, and just as importantly may be distributed via guidance just as effectively as via regulated advice.
Although this vertical integration may appear as a considerable threat to regulated financial advisory firms, successful IFAs are trusted by their clients and have considerable skills to ensure that the products sold are suitable. Combining the two virtues is sure to minimise complaints, increase new business and allow distribution to be scalable and profitable with good processes in place. Such businesses will always be in demand so the opportunity for advisers is to develop their firms to the point where they are attractive to investors who are willing to pay a premium for quality.