Cutting the red tape - too many players within the value chain?

Financial Advisory

Financial Advisory

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Moderator: Malcolm Kerr - EY

Scribe: Will Smith  

Two sessions were run on the day covering this topic.  While there were some minor and distinct elements, the main topic areas explored by delegates were common between these sessions and the following is a combined summary. 

The Theme of the Presentation

In a world that is changing at one of the fastest rates ever witnessed in human history, driven predominantly by the revolution in technology and communications, businesses have the opportunity - or even duty - to evolve their own propositions in order to stay relevant for their clients.

So manufacturers, DFMs, platforms, technology providers, robo advisers, back office, front office – are there too many layers of cost? Are there elements of the value chain which can be commoditised? 

This session was an opportunity to review the value chain – who is taking what? And where tasks are outsourced – are they adding value? 

Key Findings 

  •  It is possible to build a profitable advisory business focusing on the retirement space which combines telephone on-line and face to face channels, however there is no serious brand in this £1trn space at present. 
  • It is challenging to mandate what is a precise good outcome for consumers as needs can be so different. FCA continues to question value for money across the entire value chain

             Fees are not the key issue but VIF’s can reduce them and conflicts can be managed

            The key issue is getting on the same side of the desk as the client 

  • There are an extraordinary number of intermediary models in the market using a very wide range of processes and technologies. 
  • Clients are interested in value not cost but regulator does not see it that way 35% margin on asset management is not sustainable; particularly given £100bn in “closet” trackers. 
  • Robo-advice will eventually gain traction and potentially create a profitable business.
  • In the short-term many challenges including cost of client engagement and complexity of retirement planning. 

          Large firms’ culture can asphyxiate innovation.

  • FCA are questioning on-going service fees value for money. They are concerned that most clients get the same service. But do             they need it? 
  • UK market margins half those in other countries and regulatory bar far higher. 
  • It is possible to reduce the overall advice costs by deploying solutions such as Enable and Fusion rather than charging clients; 30bps for a platform
  • Building your own platform can reduce costs to 17- 18bps 
  • Some adviser are looking hard for new clients. Most already have enough. Maximum 200 per adviser. Maybe just 100. 

Recommendations 

  • Charges for active funds that do not deliver alpha must come down 
  • Adviser charges are not under threat due to demand versus supply but FCA are looking at value delivered and firms must lobby when consultation process starts.

Owen James Group

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