"£7billion a year skimmed off our savings" ran the headline in last Saturday's Telegraph refering to the fees charged by retail funds.
While weekend papers run this kind of piece from time to time - it's clear from the prominence of this article, a third of the front page (not just the front page of the money section but of the whole paper) that this really is an issue of the moment.
The argument was as follows; on top of the annual management fee there are a range of administrative expenses which if customers really understood what was going on would be seen in many cases as unacceptable.
In an industry in which advisers are transforming their business models ahead of RDR to charge fees and the value chain from fund provider, product/platform provider and adviser is becoming increasingly transparent, greater price pressure will of course be placed on each.
What advice firms tell us is that something has to give. It can't be the ongoing adviser's fees as advisers in the future will be doing more not less. The platform fee where there is one, is already the smallest component.
The focus now as per Saturday's Telegraph is the costs of fund management.
We are seeing more and more clients and firms adopt a greater proportion of passives within their portfolio. Another route is the use of Exchange Traded Funds. Cost is a major driver for both of these strategies. RDR is likely to accelerate this trend given the requirement for independent advisers to take them into account.
But in a difficult and unpredictable market active managers argue that this is where they add their value; finding the opportunities which trackers cannot.
The difficulty here is that as high quality risk profiling of clients becomes the norm and applications like our own Dynamic Planner® (see this review in The Times) are used to help advisers work with customers to agree how much risk they ought to take on, having fund managers take risks outside of an agreed 'budget' does not work.
Increasingly fund managers have been asking us to classify their funds against our risk profiles given the widespread use of Dynamic Planner risk profiling across the industry.
We launched our Fund Risk Profiling service back in April and the level of interest has been amazing with DFMs, fund managers and providers coming to talk to us. The latest group to sign up last week was Skandia with their Spectrum funds.
The benefit to the customer and adviser of course is that once a risk profile has been selected it's a much simpler job to select a fund or model portfolio whose strategic asset allocation meets that profile. That straight-through process from financial and investment planning in the front office through to fund selection is critical as it lowers the cost. Not just for the adviser but also for the fund manager who can then receive instructions electronically - providing scope for fee reduction.
Technology plays a critical role in enabling advice firms to charge fees while reducing costs for the other players in the value chain. Getting costs down to a level where they are acceptable AND delivering a quality service to the customer has got to be a good thing.
Our thoughts on financial planning and front office technology
Saturday, 7 August 2010
Monday, 2 August 2010
Enriching relationships
Last month, I spoke at Westminster & City’s ‘Implementing the RDR’ conference. From the nature of the other speakers, delegates and Q&A sessions it was clear that financial organisations are now very focused on making the significant transitions required: providers, platforms and advice firms.
I presented our latest adviser productivity research from last month, shortly to be published in a white paper “A problem shared is a problem halved”. In the context of declining initial fees (see Clive Waller’s excellent study), the need for the dramatically enhanced productivity in the front office is an absolute. Many of our clients are now saying; ‘Our people need to work twice as hard to earn the same’. Our view of how to achieve this is through three key strands: 1) greater use of technology in the front office 2) segmentation of the client base and the delivery of an appropriate proposition to each and 3) ‘sharing the problem with the customer’. This was written up by FT Adviser as “Advisers need to board the ‘Easy Jet’ trend”. Much snappier but the essence is right. Easy Jet and many travel companies get the customer to do more of the work before they deliver their service. So must our industry. Email me if you would like the full presentation.
There was a lot of interest from banks on Simplified Advice and on qualification levels in particular. The FSA’s view was that there are a number of advice regimes in existence already (advised, basic advice and non-advised) they do not see the need for another one. Furthermore, they feel there is yet to be convincing evidence that QCAL4 was not required for advisers delivering Simplified Advice on the basis of ‘what is it that is so different from full advice that would mean a lower standard of qualification is required?’ The FSA was clear that in the event that the Financial Ombudsman Service felt that ‘advice’ had been provided it would need to be reviewed in that context. They are open to the industry making the case though.
On this last point, we worked with the ABI & BBA on designing and testing a new Simplified Advice process - Assisted Purchase. It was clear from this research that customers did in fact feel that they had been advised. Peter Smith repeated the FSA’s view that simple processes were in fact allowable under the current regulatory regime and that if the process of delivery of advice was systematized then this represented an opportunity in so far as qualifications clearly don’t apply to systems. Clearly there are opportunities here.
Ben Goss, CEO Distribution Technology
I presented our latest adviser productivity research from last month, shortly to be published in a white paper “A problem shared is a problem halved”. In the context of declining initial fees (see Clive Waller’s excellent study), the need for the dramatically enhanced productivity in the front office is an absolute. Many of our clients are now saying; ‘Our people need to work twice as hard to earn the same’. Our view of how to achieve this is through three key strands: 1) greater use of technology in the front office 2) segmentation of the client base and the delivery of an appropriate proposition to each and 3) ‘sharing the problem with the customer’. This was written up by FT Adviser as “Advisers need to board the ‘Easy Jet’ trend”. Much snappier but the essence is right. Easy Jet and many travel companies get the customer to do more of the work before they deliver their service. So must our industry. Email me if you would like the full presentation.
There was a lot of interest from banks on Simplified Advice and on qualification levels in particular. The FSA’s view was that there are a number of advice regimes in existence already (advised, basic advice and non-advised) they do not see the need for another one. Furthermore, they feel there is yet to be convincing evidence that QCAL4 was not required for advisers delivering Simplified Advice on the basis of ‘what is it that is so different from full advice that would mean a lower standard of qualification is required?’ The FSA was clear that in the event that the Financial Ombudsman Service felt that ‘advice’ had been provided it would need to be reviewed in that context. They are open to the industry making the case though.
On this last point, we worked with the ABI & BBA on designing and testing a new Simplified Advice process - Assisted Purchase. It was clear from this research that customers did in fact feel that they had been advised. Peter Smith repeated the FSA’s view that simple processes were in fact allowable under the current regulatory regime and that if the process of delivery of advice was systematized then this represented an opportunity in so far as qualifications clearly don’t apply to systems. Clearly there are opportunities here.
Ben Goss, CEO Distribution Technology
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