Part of our series of articles celebrating IFA Magazine’s ten year anniversary, Damian Davies, Managing Director at The Timebank reflects on the changes to financial planning and advice over the past decade as he shares his thinking with us on the evolution of the industry into a profession.
The last 10 years have seen dramatic changes. These are some of the areas which jump out at me as I look back to 2011 and consider the differences between then and now.
Clients
Clients seeking advice must have felt a bit lost 10 years ago, as most of the large high street banks closed their advice divisions. Now, 10 years later and with new management coming up with radical new ideas, banks are opening up their sales teams again!
Advisers
Advisers were coming to terms with the idea of depolarisation and were staring down the barrel of RDR. It was a massive change.
The industry
RDR turbocharged some of the more familiar parts of today’s industry like CIPs and client service propositions. Whilst ‘planning’ has been around since the 80s, a post RDR world encouraged firms to adopt it.
I am not sure the regulator wanted RDR to see a mass adoption of AUM fees, particularly when you look at some of the recent regulator comment around adviser charging.
It felt a little like MiFID II was brought in to mandate some of the things that the regulators had hoped would happen off the back of RDR that didn’t get widely adopted, like annual suitability.
Fee disclosure is starting to bring the cost of advice into sharp focus.
The next 10 years
Clients
Research we conducted here at The Timebank in May 2021 showed that more than 50% of people still think advisers take their income through commission. Incredibly, only 14% of people think advisers charge an AUM fee. I would love to see advisers educating clients over the value of their fees. rather than the cost of their fees.
Looking at the rise of social media, clients have access to so much information now, so maybe the next 10 years could see advisers shifting their relationships with the clients from one of knowledge to one of guidance. That is the real value.
Advisers
We need to nail segmentation and CIPs. If we don’t this is a massive commercial and regulatory risk for the future.
We are still hung up on the idea that segmentation is the same as service proposition. Service proposition is the service any client can receive, whereas segmentation is a matrix of overlapping characteristics that are used to identify clients with shared requirements.
Without segmentation, it is almost impossible to have a proper CIP. A CIP is a process you go through to identify products that will match the client’s characteristics. The fund or platform is the outcome of that process. Clients go through a CIP, they don’t go into a CIP.
Once we nail these two things, I think we can spend so much more time delivering real value to clients and guiding to their goals.
My only prediction is that cashflow forecasting will become mandated and regulated for more of advice than just DB transfers. Mandating cashflows will close the shortcomings the regulator sees with suitability, which is linking advice to PROPER client objectives (not manufactured ones to support ‘asset consolidation’.
The profession
If we are on a journey from industry to profession, the beating heart of achieving this has to be a representative body.
Over the last 10 years, the two bodies I felt closest to achieving this have always been the IFP and the PFS.
When the IFP merged with the CISI in 2015, it felt like the end of an era. CISI didn’t seem a natural home for the IFP accreditation. Our clients in the Republic of Ireland have a proportionately much higher take up of the Certified Financial Planner designation than in the UK, despite not having had an RDR there (yet).
Now, there are concerns over the future of the PFS, who have had huge success with their Chartered status, which they launched in 2005.
Will the PFS spin out as an independent body? Is NextGen a more appropriate solution? (I sound like the opening credits to that old TV show ‘soap’ now!). I’ll leave you pondering those questions as we turn our attention to the future and the ongoing development of the UK financial planning profession.
