Financial services firms must urgently adapt business models to survive today’s challenging climate
Clapton Consultants; the chartered accountancy practice has said that many financial services organisations should consider adopting alternative business models in order to meet the demands of current industry challenges.
Major ongoing initiatives shaping the current landscape including RDR, auto-enrolment, guidance v regulated advice, robo-advice and the government objective to increase individual savings for retirement are all changing the working environment of financial services. This makes it increasingly challenging for firms to identify a scalable and profitable business model that fits with these trends; the chartered accountant has said.
Many UK asset managers who are suffering as a result of a growing regulatory burden and increasing scrutiny on charges 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.
Eric Clapton, Owner/MD of Clapton Consultants says:
‘These businesses would be well advised to 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.’
‘For regulated financial advisory firms, this vertical integration may appear as a considerable threat; but successful IFAs are trusted by their clients and have considerable skills to ensure that the products sold are suitable. Combining the two virtues minimises complaints, increases new business and allows that 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. This is likely to involve the advisory firm developing its management and systems skills to reduce reliance on key individuals.’