Specific concerns exressed last year by the IA 100 about robo-advice has fallen down the list of concerns. These have been wrapped up in a much broader annd moroe sophisticated view of the challenges posed by techncology.
At the heart of this challenge is the need to harness technology to meet the rapidly changing expectations of customers, according to Sarah Dunnagem chief executive officer of Ardan International. “The challenge will be to ensure that platform technology keeps pace with the ever-increasing demands of the consumer”, she says.
“The world of both mobile and tablet technology advances every day. With this comes the need to add faster, more efficient functionality that allows end users to experience the platform in a way they have come to expect from the likes of Amazon or Google.”
This is not just a “nice to do” item on corporate agendas; it is absolutely a “must do”, according to Chung Chun Lim, Chairman and CEO of the iFast Coporation.
“The greatest challenge the financial advisory sector faces in the next five years is the changing business models arising from technological change.” he says.
“The internet empowers consumers and advisers and brings about unprececdented levels of transparency. Advisers can either fade out of the industry if they are unable or unwilling to adapt, or flourish with the newfound opportunities through the right business models.”
Lim is not alone in voicing strong views on the threat to firms. “Technology has changed the way investors behave; they expect a better, faster, more personalised experience.
“The industry has been too slow to adapt to this rapidly changing environment and is under pressure to deliver. Firms that embrace technology will flourish, those that don’t will go the way of the dinosaurs,” says Mike Sanderson, general manager of Praemium.
Many, however, see this challenge as unlocking opportunities. “The disruption that massive technological advances will cause in the industry is, ironically, where our best opportunities lie,” according to Austin Blair, CEO of the Providence Group.
Regulatory fallout
Though regulation still features high on the list of concerns, it is now seen as having had its main impact in the form of the UK Retail Distribution Review. Adjusting to its influence is now a fact of business life but one no longer looming so large for those scanning the horizon for future challenges.
However, no one should underestimate its impact, says Sheila Dickinson, managing partner of Select Investors. “In the advisory sector, commission-driven sales of insurance-based products were, as they had been years before in the UK, the basis of most advisory businesses.
“Not surprisingly, this gave the industry a dubious reputation. Things have changed since then and, for me, commission/fee disclosure has had the greatest impact both many years ago in the UK and latterly in Hong Kong,” she says.
There is a significant crossover from technology and regulation to the other issues raised by our IA 100. It affects the sustainability of business models and the adjustment from commission to fees.
Phil Billingham sums up the challenge facing advisers: “The move from being paid to sell products to charging fees for advice sounds simple, but it changes culture, remuneration, recruitment and client relationships. Do you want to be a doctor or a pharmacist?”
There could be a big price to pay for not embracing this trend, warns Trevor Keidan, managing director of Infinity Financial Solutions. “A transition from commission-based to passive/fee-based planning, delivering better outcomes for clients, advisers and the business, is giving the business a firmer footing and more robust client offering. Companies that don’t adapt will find it difficult to weather the storm.”
Transparency is discussed by many of our entrants this year. For some in the UK and Europe it has already arrived, while elsewhere in the world its impact
is being felt gradually. This has prompted a mixture of concern and unease, blended with an awareness that it should drive an improvement in standards, according to Keith Richards, CEO of the Personal Finance Society.
“The need to raise professional standards and provide greater transparency of charges and commission by different regulatory authorities across the world will bring disruption and change, which is likely to represent the most common challenge,” says Richards.
These issues pose fundamental questions about the products and services the sector offers, warns Guy Vanner, managing director of AKG Financial Services. “The collision of different interlinked changes will be a massive challenge. Social change in terms of expectations of customers and who those customers are, the technology potential that exists but awaits application and the roles of government and regulators, for example,” he says. “Some of what we consider fundamental, such as the very purpose of insurance, could be questioned.”
There are also some new issues on this year’s agenda. While geopolitical and economic pressures barely figured in the future challenges identified by last year’s IA 100, many are feeling the pressures of external events this year, including Andrew Shepherd, CEO international and group deputy CEO of Brooks Macdonald Group.
“The biggest challenge currently is the political environment, with the unresolved Brexit position affecting the UK, Europe and beyond. Tensions in the Middle East, China and the US are also hitting the global economic situation. This uncertainty will drive global economics over the next five years, which in turn will affect client returns,” says Shepherd.
The pressure on returns is what also bothers Michael Leahy, managing director of Prudential International. He says: “Low interest rates represent a major challenge for the industry in meeting the needs of cautious investors, particularly at older ages.”
Another new concern is the battle for talent as many fear the profession faces a tricky few years. “Industry research suggests the age of a financial planner remains at around 55. The outflow of financial planners retiring is far greater than those joining the profession, so I envisage we will have a shortage of planning talent for some years to come,” according Paradigm Norton Financial Planning’s CEO Barry Horner.
A call to arms
Nick Smith, managing partner of the Taylor Brunswick Group, highlights an industry-wide challenge: “At this turning point for all advisory firms, ensuring value propositions that remain relevant and powerful in order to retain clients in such a rapidly changing environment is one of the greatest opportunities to building a long-term business model.”
The industry leaders also retain an awareness of the need to rebuild public trust as they reshape their business models and product ranges to ensure that appropriate advice and the right products are accessible by the people who need them.
This is not a task that can be taken lightly, according to Blacktower Financial Management’s group managing director John Westwood. “The whole sector must regain its credibility and public trust,” he says.
“Too often we have seen yet another scandal headlined in the press, ranging from mis-sold investment products to pension scammers stealing investors’ funds. As an industry we must pull together and remove these practices from the market once and for all.”
