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GUEST OPINION: 2014 - The End Of The Beginning for UK Post-Reform Wealth Management

David Ferguson

Nucleus

23 December 2013

David Ferguson, who is chief executive of , the UK platform business for financial advisors, sets out his views on the state of the UK and wider wealth management market, a sector that has in 2013 seen the arrival of the biggest regulatory change to take hold for many years in the form of the Retail Distribution Review. His views are his own and not necessarily shared by the editors of this publication but we are very pleased to share these thoughts with readers.

We are at the end of the beginning. And there's a huge gap emerging. Not between the "haves" and "have nots" but between the "get its" and the "don't get its". A crazy bunch of pioneers embarked on a journey to fee-based financial planning around a decade and a half ago. They figured that they could leverage transparency to create better clients outcomes and make more money at the expense of legacy product providers.

And guess what? They were right.

We are now almost 12 months into that operating model becoming mandatory and it is more evident than ever that some market participants are getting all of this, while others simply are not. Too many providers have made the letter of the law shift but are nowhere near to making the cultural one. Too many advisors are still bleating on about the RDR instead of focusing on better client outcomes. Those “crazies” who got the ball rolling in the late twentieth century didn't need a regulator to get them up in the morning. No, they saw an opportunity driven by a commercial rather than a regulatory agenda. There are now thousands of them, all at different stages of the journey.

Those advisors whose journeys haven't yet started (even where they've got a ticket by passing some exams) are struggling and are going to continue to struggle. It's starting to be evidenced in the flailing business models of the big adviser networks, no longer able to rely on provider payments to keep the wheels turning.

On the other hand those advisors who are already on the journey seem to be having a great year. And those that started the journey more than five years ago are having an outstanding year.

The recent media coverage relating to a legacy SIPP provider (still) pocketing commission in respect of equity dealing commissions highlighted the gap between those that get “it” and those that don’t.

From what I can see the successful advisors of the future are going to be bigger on the softer skills – great relationship management, strong empathy, adaptability and flexibility. And the successful providers of the future are certainly not going to be those dealing in dirty margins.

Loads of old-style companies are reading the rules but not understanding them. Or they understand them but don't know what to do. Either is cool with me. 2013 was probably a transitional year for the wider industry. 2014 is the start of the next phase.

UK regulator’s noises

The is making incredibly positive noises about the style of its regulatory model. It's all about culture and not box-ticking compliance. Maybe we'll even start to see a regulatory dividend emerging for those doing the right things?

Whether you are a provider, a platform, a fund manager or a financial advisor, if you are proud of what you charge for what you do, you have nothing to fear and only a positive future to look forward to. If you find yourself a bit edgy on transparency, not being entirely frank or concealing the hard truth your days are probably numbered. If that means there are more casualties before the industry starts to really build a proper trust with society, so be it.

The issue of “super-clean” is something that also needs addressed. We have a situation where on the one hand platforms are claiming (to asset managers) they are able to influence flows (and hence “deserve” super-clean terms) while on the other they are in complete denial of their requirements under PS13/1 to ensure they present investment products without bias. Someone somewhere is being a little economic with the truth.

And please let's not use advisor numbers as our calibration. Instead, let's use engaged, happy customers. There are loads of business models which can support more happy clients with fewer advisors. A focus on advisor count is lazy and obfuscates what is really going on. There is a smallish but rapidly growing group of extremely professional advisors operating on a very client-focused basis that are creating brilliant client outcomes. We just need more of them.