I had the pleasure of spending last week working in London - and learned first-hand from experts there about the state of the financial advice market.
It seems that the UK is ahead of Australia by about six years on reform and the impact it has had on the advice market. Like the Royal Commission here, the UK went through the RDR (Retail Distribution Review) in 2012, where the sale and distribution of investment products was examined and reformed.
Like Australia, the outcome was big banks pulling out of financial advice, and advisers shrinking in numbers. In 2009, there were almost 28,000 financial advisers; five years later, it went down to 22,000. But the good news is, it’s now on the rise – with more than 25,000 advisers in the UK today.
Now, this may not sound like a lot – especially with the fact that the UK has a population of 66 million as compared to our 25 million. Like us, the UK has a low take-up of financial advice: nine out of every 10 people in the UK have not had financial advice in the past year.
Despite population numbers, it would seem, however, that our markets are surprisingly similar - low take-up of advice, adviser numbers going down in review time (but now rising again in the UK) and banks realising financial advice is too much risk for them.
What is also the same is the relationship between fund managers and advisers. In the UK, the majority of funds flow still comes to fund managers via advisers.
Platforms are also extremely important. Interestingly, in the B2B space, there is no one clear leader in the market – in fact, none of the four leading platforms has a market share higher than 20%. In the B2C platform space, however, there is a clear leader, with Hargreaves Lansdown having a market share of 40%.
The fact that most people thought that investors would avoid advisers after the RDR was also proven wrong. In fact, according to a recent report by BNP Paribas, the B2B segment grew much faster than the B2C one, between 2013 and 2017.
So what do these insights tell us? That perhaps while we see dwindling adviser numbers now, as the years pass, they will grow again. The fact that the banks have pulled out of financial advice is not surprising both locally and globally, and that funds flow is still predominately controlled by advisers in a post-reform world.
How fund managers work to adapt their distribution strategies to a market post reform, and how important ratings are to funds and advisers moving forward will be an important part of who wins in the market post legislative change.
While the UK might be ahead of us on time, there are indicators that Australia will follow suit in many areas. Our guaranteed superannuation system, however, puts us ahead as a nation of savers as we head into the greatest inter-generational wealth transfer in history.
One thing is for sure, however – those who continue to innovate, spend money on technology and place a continual high value on relationships will prosper in any market.
Until next time,
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