Blog: Growth of D2C is good news for advisers

Rob Thorpe, head of UK retail at Cazenove Capital Management, on changes to distribution post-RDR and whether IFAs will benefit.

There is some noise in the financial services industry surrounding the growth of the direct to consumer (or business to consumer) market in the UK resulting from the RDR.

Some research suggests the B2C market will compete directly with the advice industry as clients increasingly turn to execution-only models as a result of platform developments, greater access to information and of course cost.

Some are speculating on the potential demise of the adviser community, and its possible extinction in the long term.

The expected decline in adviser numbers in future will be a result of a number of contributing factors but it will not be as a direct result of the increasing number of clients deciding to use a B2C platform.

Within the financial advisory sector there is a broad range of business models, but all have one thing in common: their filing cabinet.

In most cases, only about 10% of the individual records in the filing cabinet represent what could be described as active clients. The others are transactional clients who have long since ceased to warrant or require ongoing advice.

The active 10% are a combination of businesses (small or large), individuals (many being higher rate taxpayers) or those with accumulated wealth.

These clients require regular contact and ongoing monitoring which the adviser continues to deliver. This is where most of the adviser’s turnover is generated – and rightly so.

The move to a fee-paying model is unlikely to affect these clients (assuming they do not already pay a fee for advice) as they value the advice they receive based on experience.

It is the balance of the files in the filing cabinet (the transactional clients), which will balk at paying a fee for a product purchase and will choose to pursue the B2C route.

This is potentially good news for advisers who do not wish to continue to deal with commercially unviable clients.

The growth of the B2C markets means there are more options to which they can refer these clients.

Many may prefer to maintain a link to an advisory firm should they need ad hoc advice and we may see a growth in advisers operating an execution-only business in parallel to their core operations.

The growth in the B2C market is good news for clients, advisers and the B2C market operators. But this point seems to be missing from many articles and conjecture on this subject.

As we debate the dynamic changes occurring in our industry, it is important to remember clients, their needs and behaviour.

It is often the case that those with more sophisticated financial planning requirements have more investible wealth and greater tax planning requirements.
The advice these individuals require simply can not be delivered by www.getcheapfinancialproductshere.com

Most direct to consumer businesses by their very nature are simple investment platforms with basic product wrappers. As execution-only platforms, by definition they do not offer the bespoke planning services required by these individuals.

The numbers of individuals requiring full financial planning and ongoing advice are significant.

We can measure the potential size of this market very simply by considering tax liabilities.

It is expected that this year 130,000 people will pay CGT annually; an estimated 750,000 will pay 50% tax and about 4,000,000 will pay the higher rate of tax (40%).

If we assume there are currently 30,000 advisers (which appears to be a consensual number) then for every adviser this equates to:

● 4 clients paying CGT;
● 25 clients paying 50% tax;
● and 133 clients paying higher rate of tax.

The development of the B2C market is one which should be embraced as it will open access of financial products to a broader market.

Anyone who suggests that a growing B2C market will bring about the demise of the financial adviser either does not understand financial planning or has never received financial advice.