The wider context of advice

Regulatory initiatives, including the Retail Distribution Review (2012), have promoted a client-centred, holistic approach to financial advice, moving it further into goal-based financial planning territory and away from the emphasis on product-pushing that existed at a time when behemoth providers and commission dominated the financial services industry.

Research and due diligence were focused on providing evidence of the whole of market and were based on features. Compliance has now shifted from case-by-case to client type or segment (PROD) and in today’s age of information and technology, when there is less differentiation between platforms and products, proof of suitability has shifted from features to an investment’s alignment with a customer’s goals, alongside risk management and cost disclosure.

Advice is almost unrecognisable from even a few years ago, when costs (including fund costs and charges and even adviser charging) were routinely undisclosed and risk was usually only a nod towards volatility, unqualified risk labels and marketing literature. Anyone who follows the Financial Services Ombudsman’s findings knows that, today, an inadequate assessment of a client’s risk profile or a recommendation of ill-judged risk will immediately result in a judgment against the adviser.

The industry mega-trend of vertical integration

The one-man bands of yore are being replaced by organisations representing groups of advisers, whose ability to deliver quality, auditable advice is paramount. This trend is part of the industry mega-trend of vertical integration, in which the ability to link the ‘manufacture’ of investment solutions to ‘distribution’ secures the ‘value chain’. This enables large, well-capitalised businesses to retain both their foothold in the market and the flexibility of their proposition.

The role of risk and other research tools in this context is as valuable to larger organisations seeking to deliver advice across larger groups of advisers as it is to small or micro advice businesses that don’t want to be disadvantaged by the quality of their research and advice processes.

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