Our Direction

Fundamental Issues Within Our Industry

The FSA have questioned the current system, and whether in the long term, it really serves anyone.

The interests of advisers and product manufacturers are not aligned. Advisers carry much of the risk of providing advice, yet it is the product manufacturers that have historically enjoyed regular predictable income and significant capital values, not the adviser.

Now product manufacturers are suffering poor product longevity leading to value erosion. They are relying significantly on higher commissions to fuel increased gross revenue, in the false hopes that this unsustainable position will be resolved. Before long, of necessity, they will need to change their financial model by reducing initial commissions.

Meanwhile, the role of the advisers is more important than ever. The demand for financial advice is growing rapidly for a number of compelling reasons:

• increasing numbers of individuals moving into the higher rate tax bracket
• changes to pension rules and hard pension choices to make with no easy answers
• changes to inheritance tax rules and confusion
• the significant rise in individuals approaching retirement, and the challenge to manage lump sum investments for both capital and income including equity release

The supply of financial advice is limited. The number of financial advisers available to provide advice is now only 20% of the number in the mid 1980s, as a result of the demise of the direct sales force and the requirements for increasing professional standards.

Opportunity

These factors lead to a scenario where expert advice is increasingly valued, and we believe the trend will continue.

The opportunity is to enable and empower advisers to migrate away from reliance on high, one-off commissions to a more sustainable and ultimately more valuable mix with a higher proportion of trail income and fees where appropriate.