Bailey Roberts Group director, Leith Thomas, is sick and tired of reading articles proclaiming Future of Financial Advice (FoFA) reform as the end of independent adviser groups.
Rounding out the best year our independent group has ever experienced, I find this perspective interesting, to say the least.
For our dealer group, we have looked at the reforms as an opportunity. We identified some time ago that what clients are really seeking is a relationship with a trusted adviser that is actively involved with the management of their financial assets.
We took the view that to really differentiate our advisers we needed to ensure that clients and potential clients understood the factors that made our practice unique. For us there was a combination of factors, which we believe are available to all unaligned dealer groups.
For too long, product manufacturers have been informing advisers of what they believe clients want; in reality from the angle of what the adviser can do to sell their product. I constantly hear that the main adviser value-add is strategic advice.
This is an important part of the equation; however, my experience is that what clients really want is a relationship where not only the strategic advice is of a high standard but where the adviser is the trusted manager of the client’s portfolio.
Whilst many advisers claim independence from an ownership prospective, many use wrap accounts owned by product producers, use the same research houses as most, use the same managed products and use the same risk profiling programs. In reality, many become sellers of a commoditised product, exposing themselves to the risk that as clients become more educated the major selling point will be based on price.
What is the real value in placing client’s money in managed funds? When neither the client nor their adviser can control tax, know exactly where their money is invested or control investment decisions or if is there is a sustainable value proposition for charging a fee?
We have always aimed to avoid our advisers being seen as mere commodities who claim their value-add is in just providing strategic advice and doing client reviews. We see differentiating ourselves on the basis of being positioned as the manager of client’s portfolio as a key way forward.
This mode of operation allows one to build a value around how they manage money and in turn create a sustainable value proposition that can justifiably be charged for. Having a system that allows clients to have total control by knowing exactly – and by this I mean exactly, not hidden in a managed fund or held by a custodian – where their wealth is invested real-time, see the companies they own and importantly see their adviser as the controller and manager of their wealth, is a sustainable post-FoFA model.
Not using bank or institution investment products can also be an important advantage. Not only has this avoided us being seen as merely the seller of someone else’s product, it has meant we are able to produce results for clients that are substantially different to the masses, especially index investors.
There is a critical mass in terms of FUM that a fund manager gets to where the sheer size of the money they manage forces them to buy only large market cap shares to avoid materially moving share prices. This seems to be a major reason why most fund managers track the index. Involving ourselves in this space would only serve to damage our adviser’s value proposition.
Selling out to a larger firm for reasons of avoiding the future advising world is unpalatable with this much opportunity. With the amount of money already moving to direct equities, I cannot think of a better time for independents than right now.
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