Advisers still going through intensive business planning, proposition development & roll out 18-months on from RDR

17 September 2014

The majority of IFAs (56%) described their experience during 2013 as ‘a period of intensive business planning and proposition creation and adoption’. One in five (21%) reached out to top tiers of their customer-base to offer reviews and service improvements. A smaller number (14.7%) were involved in merger, acquisition or some other major structural business change event last year.

Client retention focus
One year on since Dunstan Thomas’ last adviser survey, firms still regard client retention as their top priority (39% ranked this as their top priority up from 36.3% last time); while 22% (up from 19%) said that client acquisition was their top priority this year.

Worst ravages of RDR change over
More positively, a much smaller number than last year 19% (down from 41.4%) were still in ‘survival mode’ i.e. focusing simply on ‘ensuring their firm is making enough income via fees to replace commission income streams’ as these fall towards zero by April 2016. This suggests that the worst effects of RDR have been felt by the majority and most have learnt to operate successfully in the new, more transparent environment.

Regulatory compliance still biggest risk
That said, the single largest threat to their business was complying with regulations, according to 59% of the audience; while a third (33.3%) stated that their largest business risk today is not doing enough fee-paying business.

Cost of doing business increased excessively
Backing this concern up, Client Agreed Remuneration (dominated by transparent fee charging) was judged to be the least desirable by-product of RDR by nearly a quarter of the sample (22%). The most undesirable by-product of RDR was the ‘excessive increase in T&C requirements, reporting and other regulatory red tape’, cited by 41% of advisers questioned in July. The rise of Direct to Consumer (D2C) platforms was seen as the least desirable impact of RDR by just over a fifth of advisers (20.6%).

The clear challenges that IFAs have faced as a result of the regulatory shake-up lead the majority (64%) to believe that aggregate numbers of advisers operating in the UK will continue to fall this year.

Budget changes create adviser opportunity
The largest single opportunity for adviser firm growth this year will come from ‘capitalising on capped and flexible drawdown opportunities (post Budget 2014 changes), according to 30% of advisers. Nearly a quarter of firms (23%) are deploying new technologies to reach and engage more clients and prospects more regularly. A smaller number see growth from completion of customer asset migration onto wrap platforms.

Asset migration tipping point reached
The market has passed the tipping point in terms of asset migration onto wrap platforms: 51% of IFAs have now moved upwards of 51% of client assets there and more than a quarter (27.5%) have moved over 70% of assets over.

Most IFAs will move over half of assets onto wraps
When asked where IFAs will be at the end of their asset migration projects, more than three-quarters (77.5%) declared they would move over 51%; and over a third (34.3%) planned to move 81% or more of client assets to wraps, indicating that there is still a good deal of capacity yet to reach wrap platforms.

Wider range of investments demanded on platform
Platforms offering a wide range of investment options were tipped for increased growth over the next two years, according to 42% of IFAs. Provider-led platforms such as Ascentric, FundsNetwork and AJ Bell were also considered ripe to attract more assets. These growth prospects may even attract new entrants in this category. A third thought there would see increases in the number of D2C platforms over the next two years.

(Transact was considered to offer the best underlying technology platform (by 35.7%), while Skandia gained was also considered to have strong underlying technology (30.6%); and FundsNetwork came in third with 27.6%.)

Platforms still need to improve usability
Platforms still need to improve their user experience, according to a quarter of IFAs. A smaller number (14.7%) said that they needed to enable fully compliant asset migration; while 12.75% said that they needed to assist client engagement more generally. Over one in 10 (11.76%) still believe that platforms need to improve re-registration processes.

Stronger integration with other adviser systems needed
Adviser priorities for platform functionality improvements are stronger integration with adviser systems (for 39.2%); online transaction capability (30.4%); risk profile tool improvement (26.5%); and Capital Gains Tax plus other tax planning calculation provision (for 20.5%). Offshore bonds were in hottest demand amongst adviser platform users (34.3% wanted to see more of them on platform); closely followed by structured products (for 30.4%) and ETFs (for 28.4%).

Natanje Holt, managing director, Dunstan Thomas, summarised:
“It’s clear that the worst effects of RDR have been felt and although many predict further falls in adviser numbers those that are left look set to see rising demands for their services as. The shake-up in the at-retirement world coming out of the latest budget changes will only fuel demand for sound financial advice – even if it does have to be paid for in a more transparent manner.”

Jon Finley, business development director, Dunstan Thomas, said:
“More than half of adviser firms have moved over half of their clients’ assets to wraps now and the prospects for accelerating asset migration (as systems, processes and investment choices grow) are also strong.

“Advisers are now calling for a wider range of investment options on wrap platforms, as well as improved business process efficiencies and tighter integration with other adviser systems. For platforms that can get all these elements right, the prize is continual large double digit AUM growth for some time to come.”