A successful IFA firm today looks quite different than a successful firm 10 years ago and I would bet the benchmark for success will move again in the next couple years. Based on a number of conversations I’ve had with IFAs over the past few months, two major factors in determining a firm’s success will be the ability to provide truly independent advice and the firm’s ability to leverage technology solutions to their advantage. With proposed changes on the horizon, regardless of the final form they take, it is clear that many IFAs will cease to exist, which should leave quite an opportunity for IFAs who are able to adapt.
So what makes an an adviser independent? The FSA says this is someone who provides comprehensive and fair analysis of the relevant market. They also say commissions will be banned in favor of a fee based charging structure to be determined by the IFA. So is your firm in a position to provide independent advice? Do you have the necessary tools and processes in place? One thing many advisers are realizing is that they will have to change the way they work in order to call themselves independent. This might include researching the whole market; considering ETFs, investment trusts or hedge funds, or turning to an independent data provider for research. If predictions hold true and many IFAs cease to provide advice in the post RDR world, the independent adviser will be in a good position to take on new clients and charge a premium for their service. The banks will certainly be major players in the scramble for new business, however, if I’m a prospective client looking for advice, an independent adviser with a quality service proposition looks a lot better to me than a banker.
The other half of the puzzle then is having a process in place that will minimize the administrative requirements of an IFA firm and allow for an increase in the number of clients without a drop in quality of service. To some this will inevitably just mean longer hours, but for others this will involve the integration of smarter business practices and the use of technology. Whether it’s a back office system that allows for easier reporting, a research tool that instills a consistent process or a planning tool that is effective with clients and easy to use, software and websites will play a major role. Technology platforms also provide a framework for multiple people ensuring a level of consistency throughout the business – most important if the person preparing the reports is not familiar with the client. Process is another popular word with regulators and an effective technology package will provide a process for one IFA, a small office or a large network.
The Adviser Workstation can be a big step in the right direction if embracing technology interests you. If you already use Morningstar for research, reporting or investment planning, hopefully it has made your business run smoother and added value. Whole of market investment data, research and reports give you the support you need for picking investments. Integration with various platforms and back office systems gives you quick access to Morningstar portfolio analysis and performance reporting. And the investment plan provides an easy-to-use process for assessing risk and determining asset allocation. This suite of tools is designed to make your advice more effective and more efficient so when opportunities come along you can respond with the highest standard of service.
I think independence and technology go hand-in-hand because they can compliment each other and without one, the other isn’t worth much. I fail to see how technology that only points advisers at selected products has anything to do with an investor’s best interests. And an independent adviser that does not embrace technology will struggle to keep up with the standards of service set by his peers and mandated by the FSA. If you disagree, please share your thoughts. And if you agree, please feel free to add your comments or observations as well. Thanks for reading.