The structure and composition of the advice industry is changing quickly, leading to positive changes to the advice proposition. Over the next few years, advice businesses and the services they offer will evolve significantly. This means service providers to advice businesses will need to evolve too.

If that seems like a bold statement, consider how much things have already changed in a relatively short period.

In 2018, the banks still dominated personal advice. Now, after a period of fragmentation and with the untangling of product and advice, the industry is being reassembled with the client firmly at the centre.

Capital is returning to the sector but it is being deployed differently. It is chasing profitable businesses that make money from delivering quality advice, not distributing product.

That said, as part of the advice process, products are almost always recommended.

When looking at the evolution of the advice proposition, product is an easy place to start because it is tangible and universal. Advisers need products like life insurance, managed funds and model portfolios to help their clients implement advice and achieve their goals.

This need is driving advice businesses to their build their own solutions, giving rise to a new form of vertical integration.

With vertical integration 2.0 (VI 2.0), the driving force is the client.

While the majority of advisers, both past and present, care deeply about their clients and give good advice, vertical integration 1.0’s product focus disadvantaged both consumers and advisers from the get-go. Many of those who operated under this model still managed to deliver strong client outcomes, but the industry’s structure and composition were originally designed to serve product manufacturers, not consumers.

As someone who ran bank-owned dealer groups in a previous life, I know people didn’t set out to do the wrong thing by the customer, but it was clear that the aim was to sell product. The architects of VI 1.0 had watched the movie Field of Dreams one too many times and adopted a “build it and they will come” mentality which said create the product, control the distribution and get it to the client. The focus was not on ensuring the right fit but making a product they could distribute to the masses.