At the center of many discussion I’ve had with IFAs over the past few months are the changes to the investment advice business and how these changes are affecting them and the IFA community as a whole. The Retail Distribution Review is of course still looming somewhere on the horizon, however, the Treating Customers Fairly initiative is well under way and a source of change already. I supposed it seems quite an obvious concept – to treat customers fairly – and certainly as an American coming to the UK a year ago, this was a bit of a strange one for me. Why is an initiative needed? How are customers treated unfairly? But I can see now that for a small business owner, it can be quite a challenge to put in place a process that levels the playing field and ensures each client’s interests are considered – especially when it doesn’t seem to make business sense.
This is obviously a touchy issue, but it’s an issue that is at the forefront of many firms value proposition. What types of changes have you and your business undertaken in the last 18 months? Good or bad, these changes have raised other issues in turn: are the resources available to both treat customers fairly and operate a profitable business? Is the industry changing along with requirements of advisers? What resources would improve your ability to provide a valuable service to your clients?
The consensus among Morningstar’s IFA clients is that TCF is a good thing that will lead to a higher quality of service, but the industry has to catch up in some areas in order to make this easier for advisers to implement. The lack of independence is a glaring issue. Many platforms do not offer an appropriate range of products for all clients or access to the full market. Fee structures are not as transparent as they should be and the end investor often suffers from this. And the information available for many financial products is not easily obtained or even obtainable. (With Profits products to be discussed in a future posting!)
I also get the feeling that TCF is old enough to have made some effects on the industry but young enough that IFAs still feel targeted by regulation and unsure of what is expected in a changing environment. What does an FSA visit consist of? What are they looking for? How is the business considered in each case? We hope to sit down with the FSA in the very near future to discuss these issues and hopefully start a constructive dialogue about advice process and best practices. More to come on this in the future…
Working for Morningstar, It is my goal to be part of the solution to the lack of resources in the marketplace and to hopefully start leveling the playing field for both the end investor as well as advisers. The end investor is always at the core of what we do, but it’s the advisers and intermediaries that need the high quality tools and data to provide a quality service to the end investor. And interestingly, it is also high quality tools that are starting to contribute to the profitability of an advice firm. The Adviser Workstation has helped several advisers streamline their advice process while providing a higher quality, more consistent service. The regulatory folks seem to like what Morningstar has to offer as well – they were very impressed with one IFA’s Adviser Workstation reports during a recent visit.
So are you happy with the way your advice process addresses TCF? Are you happy that TCF is part of being an financial adviser? If you’re not, are some of the reasons addressed above? The next 18 months should be interesting as businesses, platforms, software and regulators all evolve in the advice industry. How will you evolve and how will the service you provide improve the lives of your clients? We see a huge opportunity to help and I’m very excited to play a part.