International Adviser spoke with John Westwood, chairman of international advice group Blacktower Financial Management.
Westwood is also a director at Nexus Portfolio Management, which was founded as a partnership with Blacktower. In 2010, he formed the Nexus Global IFA Network to provide a licensing, compliance and support network to other IFA organisations looking to passport their services throughout Europe and beyond.
Westwood shared his views on compliance, regulation, tech, networks, business growth and the impact of the current macroeconomic environment on clients.
Compliance
1. Are IFAs suffering from too much regulation and compliance?
Increasingly rigorous compliance regulations are without doubt increasing workload for IFAs and can lead to additional pressure as a result. However, if advice firms and IFAs are proactive and responsive to these changes, this pressure can be drastically reduced. Ultimately, the regulatory and compliance rulings are there to protect both clients and advisers, and stricter regulations should be seen as an opportunity to provide a more robust, dependable service.
2. Do you expect more regulation to be implemented in the advice sector?
Regulations are often implemented in a reactive manner to new developments in the financial-services industry, which is constantly evolving. It is therefore not so much a matter of whether new regulations will be introduced, but when. Firms and IFAs should be given sufficient time to adjust to the recent changes, but they should simultaneously be prepared to modify processes that might be affected by new compliance laws. Agility in this area is key.
3. Does tech implementation need to improve to help IFAs with compliance?
There is an abundance of new technology and software that can assist IFAs with regulatory compliance. However, these can be expensive and still require an understanding of how to maximise their efficiency. In my opinion, there is no substitute for an experienced compliance team. Technology can definitely be used to improve efficiency and reduce administrative work, but it should be combined with experience and comprehensive knowledge of the subject.
4. What can IFAs do to reduce their compliance and regulatory burden?
For independent IFAs working alone, joining an IFA network is one of the easiest ways to reduce the workload associated with regulatory compliance. The network can safeguard the IFA by covering them with its compliance framework, while the adviser still has the ability to operate under their own brand, using their own preferred working methods. A network can also help alleviate the increased administrative workload generated by stricter regulations as well as the potential impact on mental well-being and stress levels.
Business growth/networks
5. How much harder has it become for smaller IFA firms to grow with regulation and costs?
The past few years have made it incredibly difficult for smaller IFA firms to grow; the knock-on effect of the pandemic; global political uncertainty; and the rise in the cost of living have resulted in increased business and operation costs eating into margins that could be used to facilitate expansion. This, coupled with the pressure of stricter compliance regulations, has forced many small firms to realign their focus on simply sustaining their business as opposed to growing it.
6. Is joining a network going to be the long-term solution for firms to be able to cope?
It is difficult to ascertain what might be ‘long-term’ solutions in such uncertain times, but in the current climate, networks definitely offer the security that so many firms are in need of right now. For some firms, joining a network might well be the only way to secure any kind of future for their businesses.
7. What good business-growth plans do you see from advice firms in the market?
It is always promising to see firms that have a concrete vision of where they plan to be in five, 10 or 15 years’ time, but having a detailed roadmap delineating how they plan to get there is the most important part. Plans that address how to prepare for potential pitfalls, as well as successes, are encouraging, as are those that have a particular focus on maintaining or improving client connection and service levels.
8. What are some of the problems facing IFA firms looking to grow?
Aside from the ongoing economic and regulatory roadblocks faced by IFA firms, businesses across the board are also facing the relatively new issue of a global skill shortage. With a significantly smaller talent pool from which to recruit, IFA firms are having real difficulties onboarding staff with the experience and knowledge that is so intrinsic to company expansion. Businesses should not only be reflecting on how they can be more attractive to potential candidates but also on how they can retain their current employees.
9. What do some firms do wrong in terms of their growth potential?
Often, firms can jump to rapid expansion without building a solid business base with well-founded, efficient processes in place first. As with any business, you have to have the fundamentals nailed down before you expand your offering geographically. Blacktower operated in the UK for a decade before we expanded into offshore operations, by which point we were well-established and had the necessary knowledge and experience to make it a success.
Macro economy
10. What is the biggest issue facing advice clients in the current market?
One of the most significant threats to clients’ wealth-management success in the current market is the feeling of uncertainty surrounding asset investment. In times like these, clients have a tendency to panic when asset values drop and can instinctively want to sell before they drop further, resisting the guidance of their adviser. It is important for clients to remember that market fluctuations are normal, and that, on the whole, it is usually better to leave assets invested, where they should eventually recover.
11. How can advice clients protect themselves from inflation?
No one can protect themselves from inflation, but guidance from an adviser will be tailored to a client’s individual circumstances to give them the best chance of minimising the impact, and will offer ways to be prepared for further increases in the cost of living. Investment in a diversified portfolio, including shares and real estate, is one way a client might be able to protect their assets against inflation.
12. Have pre-retirees delayed retirement plans due to the financial market?
Unfortunately, we have seen some individuals delay their retirement plans due to the impact of inflation; as the cost of living increases, many would-be retirees simply don’t feel secure enough in their finances or the future of the economy to give up the reliable income from work. In certain scenarios, this might be unavoidable. However, starting the process of retirement planning as early as possible, in order to be prepared for such market fluctuations, makes it far less likely that it will be necessary to put such plans on hold.
13. The future of the conventional multi-asset 60/40 portfolio has been debated recently. Where do you stand on it? What should advice clients be invested in?
While the conventional 60% stocks/40% bonds portfolio division still tends to offer stable returns, it has become less lucrative. Alternatives, such as all equity or tactical asset allocations are becoming increasingly popular and should at least be considered when assessing client investment strategy.
