Hybrid advice is the future

2017 was a busy year for me in terms of conferences and seminars. I did fifteen presentations on MiFID, PRIPPS and other regulatory developments to financial advisers across the UK on behalf of Old Mutual Wealth, two Money Marketing Interactive sessions and a presentation at their Retirement Summit, I facilitated several adviser roundtables at Meeting of Minds events and a number of other presentations to networks and providers. In addition, I judged a number of awards such as Money Marketing, Women in Investment, International Investment and Gold Standards. It is a privilege and a great way of keeping up with what is happening in the market and has served me well over the past twenty years or so.

As usual, at the majority of the events, I was able to talk to and, more important, listen to financial advisers before the presentations and during the breaks. They included owners of large and small firms, highly experienced advisers and, pleasingly, quite a few new advisers. There were mortgage advisers, independent advisers and restricted advisers. Some very focussed on high net worth clients; others prepared to deal with almost anybody. Very disparate groups. In fact, the only thing almost all had in common were their complaints about the costs and impacts of regulation. Nothing new there!

One conclusion I reached is not very positive. But also, not very surprising. One segment of advisers is selling professional services. Another is still selling products; albeit with facilitated fees as opposed to commissions. My guess is that the latter might still account for a third of the market. And until it changes its culture it poses a serious reputational and financial threat to the other two thirds; particularly in the DB to DC advice space.

Another conclusion was around technology. And it’s much more positive. Over the years point of sale technology has evolved into sophisticated practice management solutions, platforms have arrived, lifetime cash-flow modelling is now widely adopted and many other web-based tools are creating improved client outcomes and reducing the costs and risks inherent in providing financial advice. But what I sense from many, but by no means all conversations, is that we are about to see a further and more substantial shift in the use of technology by firms. Perhaps a revolution rather than evolution.

Over the last few years we have seen different strategies deployed to gain market share in the provision of financial services. For example, in the banking sector, we saw the launch of Metro Bank based on a strong belief that face to face interaction with clients in well positioned locations will be a winning proposition. More recently, we have Atom Bank, formed on the belief that the future winners will be based 100% on telephony. Interestingly the chairman of the latter was previously the chairman of the former.

We have also seen about twenty internet-only investment proposition start-ups with Nutmeg, now holding £1bn, of assets claiming market leadership. Data on most of these businesses is in short supply but most seem to be a long way away from making any money. And just in the last few months a number of retail banks and investment banks have announced plans to join the fray.

Interestingly, a couple of the internet-only players are now recruiting advisers. More interestingly, what I learned from about a dozen advisers during 2017, was that they were creating on-line propositions for their clients. It was referred to as a “Hybrid Model” that would enable a client to interact with the firm anyway that they want. Laptop, desktop tablet, phone or face to face. And it seems to me that this is the future. Actually, it is the present for some firms.

Anyone thinking about developing a hybrid firm will be spoilt for choice when it comes to the technology. The key challenges will be culture strategy, execution. As far as culture is concerned and without wishing to be considered ageist I have to say that most of the firms I spoke with who are looking at this proposition seriously were run by people in their thirties not their fifties. They were already using technology to cut down on paper and cost and were very enthusiastic about using technology to better serve those clients that wanted to take advantage of it.

As far as strategy was concerned the view was that “going hybrid” was not a new strategy but an extension of an existing service; not just in terms of the initial advice but also in terms of ongoing service. However, one comment in particular struck me. “We want to put clients in the driving seat, we want them to choose how to engage with us; to decide what channels they wish to use at any time and what fee propositions work for them”.

Of course, execution is key. And if your business is working well and your calendar full why would you want to look into this? If it’s not broken why try and fix it? Building it will be costly and time consuming. Yes, it will. But not too costly and not too time consuming. Why not consider it an investment not a cost? And why not look at what it might add to the value of your firm if you chose to sell? A couple of examples were pointed out to me. First, the hybrid firm can provide transaction services to the mass affluent and still make money. Clients can look at a simple set of fees and work out what works for them. Do they really need face to face advice? Maybe not. But if at some stage they do they can get it from the same place. Second; the next generations; it seems likely that their first avenue to making an investment will not involve talking to grey-haired men around a table.

Financial advisers are well equipped to win in this space. They already have clients and referrals. They also already have advisers. And, unlike technology, you can’t buy this component off the shelf.