In the first of a three-part feature, David Tiller, Head of UK Propositions at Standard Life, considers the future of the advice market: what’s driving increased demand and competition, and the advice models of the future.
The adviser marketplace is going through a historic transformation. Demand for advice has never been greater, fuelled by several deeply-rooted trends. That means there are huge opportunities for those who can grasp it – not only advisers but also other businesses.
Here I look at what’s driving these changes both in terms of demand and competition, and the advisory models that are likely to emerge.
As we’re all aware, the demands of clients have increased and changed over recent years. Statistics on the ageing population and increasing life expectancy signal a huge segment of the population who’ll need to fund a longer retirement. Many of these won’t have any defined benefit (DB) provision, and the amount they’ll get from any State pension looks increasingly under threat.
And while pension freedoms have given clients more choices, it also brings significant complexities and risks for them to navigate.
This comes together into three major trends which I see driving demand for advice and supporting the new competition coming into the market.
These three drivers are here to stay. Regulators aren’t likely to step back from looking after consumers’ interests, and increased transparency and disclosures. Technology is only going to continue advancing. And while it’s impossible to predict the future performance of markets, the low-growth, low-inflation environment is predicted to continue.
New competition is coming from businesses which understand they need to be involved in the advice process to diversify their sources of income. In some cases that’s through partnership with advice businesses, in other cases it’s by owning the advice process itself.
These businesses can all see the opportunities the advice market offers. And some will be entering the market with little baggage or legacy systems, bringing their best ideas around digitisation and automation.
Adviser businesses need to acknowledge the market will evolve, and fully leverage the existing strengths they have in their deep client understanding and evolved propositions.
I believe three high-level models are likely to emerge: robo advice, remote advice and digitally enhanced advice.
The most simple robo model is likely to have a relatively small audience, but remote advice could potentially have a huge audience. So to survive, adviser businesses will need to position themselves in line with their chosen customer segments, normally between the remote and digitally enhanced models.
Advances in automation mean adviser businesses will have to manage the conflict of demonstrating value, while retaining competitive fees that can stand up to scrutiny alongside pure robo models. This will involve embracing the digital technology that robo uses to make their operational processes just as efficient, if not more so. At the same time, however, it's equally important to clearly articulate to their clients the value-added service they get through personal advice.
So it’s about retaining the service they already provide that genuinely adds value, and taking advantage of new technology in the areas where it isn’t. For example, if a client isn’t going to pay an adviser for doing something manually, then automate. By continuing with manual processes where customers can’t perceive value, advisers are effectively disadvantaging themselves against simple robo models.
The good news is that advisers aren’t alone during this challenging transition period. In part 2, I look at the developments in investments and platforms that can help advisers offer their clients compelling and individual solutions.
The views expressed in this article are those of the author and not Standard Life Aberdeen. Standard Life Aberdeen accepts no responsibility for advice that may be formulated on the basis of this information.