Future of Advice: Beneath & Beyond

AKG’s Matt Ward provides background on the thinking behind AKG’s recent research paper on the future of advice and a brief outline of some of the associated considerations and emerging dynamics for providers, including DFMs and platforms.

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Intermediary distribution is the lifeblood of most of the financial services companies assessed by AKG across our four peer sectors – Provider; Offshore; Platform; DFM. As such a key part of AKG’s work in assessing the operational strength and sustainability of these companies involves close monitoring of the temperature and due consideration of the likely future dynamics and shape of the intermediary distribution market.

AKG’s overarching objective therefore with its recently published Future of Advice research paper was to produce a practical paper which looked at key factors, drivers for change, likely shape of the market and sought to establish the main advice/distribution challenges and opportunities for intermediary businesses, manufacturers and other relevant industry stakeholders. Primarily over the next two to three years but also to flag longer-term considerations as well.

AKG carried out three separate but complementary market research exercises, with both adviser and consumer audiences, to underpin the delivery of the project and hence associated research findings are referenced throughout the paper.

KEY PROVIDER MARKET PLAYERS NOW AND IN THE FUTURE

AKG’s interviews with intermediary firms flagged up potential challenges for provider participants in the value chain:

  • DFMs will need to demonstrate the value they add relative to lower cost investment approaches given the increasing scrutiny on costs (especially relative to performance).
  • Asset managers also have continuing issues in terms of costs and disclosure and advisers commonly feel their margins will come under scrutiny and pressure.
  • Platforms are increasingly regarded by advisers as enablers rather than products or services in their own right. There is a strong feeling among some interview participants that there are too many platforms in the market, that they need scale to maintain price competitiveness and that hence there will be some rationalisation in this area.

PROVIDER/OPERATOR M&A OUTLOOK

Adviser quant stats: Provider/operator M&A outlook - In addition to finding out about the outlook for M&A activity on the distribution side of the fence AKG also wanted to get adviser predictions for provider/operator M&A activity.

Source: Quantitative adviser market research questions

Responses were more measured/mixed in their outlook here (indeed not all advisers registered a response to this question) but 39% still felt that M&A activity would gather momentum over the next 2 to 3 years, with 22% feeling that it would slow down.

M&A activity has been rife across AKG’s assessment sectors in recent years and currently shows few signs of slowing down, although it remains to be seen if COVID-19 might impact on the pace of transactions in the short-term.

Despite the proliferation of M&A activity, and the best efforts made to negate associated impact on businesses throughout the process, the ability to maintain ‘BAU’ status remains ever challenging.

OUTLOOK FOR FINANCIAL SERVICES PROVIDERS/OPERATORS

Adviser quant stats: Outlook for financial services providers/operators

Intermediary business is the lifeblood of the vast majority of financial services companies assessed by AKG and so in ascertaining their future prospects we were keen to find out which types of provider/operator – within and outwith AKG’s assessment sectors – respondents saw benefiting most from opportunities to service advisers and their clients over the next two to three years.

Source: Quantitative adviser market research questions

Apparently positive news here for platform operators initially with 49% of those surveyed by AKG feeling that these would benefit most from opportunities to service advisers and their clients over the next two to three years, while 26% felt that DFMs would benefit the most.

Interesting to see support for Client Portals (37%) and Lifetime Cashflow Modelling software (33%), underlining the wide range of propositions and tools that intermediary firms require to deliver their advice services to clients these days. And also highlighting some of the challenges facing more traditional L&P providers given that some product types are becoming more commoditised and indeed platforms are electing to add more in-house products these days.

AKG’s Future of Advice research paper is available to download at: https://www.akg.co.uk/downloads.

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AKG Financial Analytics

AKG is an independent organisation, which has specialised in the provision of assessment, ratings, information and market assistance to the financial services industry for over 25 years. A core focus is financial strength. In this AKG takes a specific and distinct customer perspective – that of the customer with ratings and reports designed and delivered for use by financial advisers.

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