Steve Tucker: New-Generation Firms Set New Benchmarks for Financial Planning Businesses

It is an empowered consumer who will demand change. This shift will be evident in the birth and subsequent growth of a new generation of advisory firms. The future firm will be independent of the vested interests of the financial institutions – both in ownership structure and product range offered.

The financial planning and wealth management profession is quickly heading toward a seismic shift in form and operation – under pressure from both the government and clients. The recent financial advice scandals have placed the profession directly under the spotlight and a radical change in its structure is now inevitable.

Despite the many government inquiries and initiatives announced over recent years, the vast majority of advisers are still aligned to a system that relies on subsidies from product sales. This is an economic reality of a vertically integrated system. About 80 per cent of advice practices are aligned to financial institutions keen to promote their own products, leading to an inherent conflict of interest as they may not be the most appropriate for the clients’ needs or aspirations.

Consumers – especially high net worth individuals – are waking up to this fact and they will be the major force in changing the structure of the industry.

New generation of firms

It is unclear how any Government or regulator can be the ultimate agent of change. It is an empowered consumer who will demand change. This shift will be evident in the birth and subsequent growth of a new generation of advisory firms. The future firm will be independent of the vested interests of the financial institutions – both in ownership structure and product range offered.

It will be a professional services partnership where revenue is derived solely from fees paid for by clients. As in most professional services firms – such as accounting partnerships – all professionals will benefit in the overall success of the entire business. This model can finally break the nexus between product and advice as there is no need for revenue to be generated by products sales for the business to be successful.

The business will pride itself on its independence, allowing advisers to offer advice without conflict to their clients, whose best interests are always put first – not behind those of the firm and its ultimate owner.

The clients will be given a completely transparent pricing structure in writing, with details of how they will be charged and for what services, as well as the standard of service to be provided.

About the needs of clients

The new firm will create investment strategies for clients’ specific aspirations, and advice for all of the family if required. It will focus on the entire client picture, including their need for inter-generational solutions, philanthropic aspirations and structuring needs. It will always be about our clients’ needs.

In addition, many of the future firms will only specialise in helping individuals, family and family offices – not corporate or institutional clients which may unduly influence the performance and advice of the firm.

The future firm will have access to the latest technology, covering investment research and asset allocation, markets, stocks and trading systems, rivalling the current majors which still claim this as their competitive advantage over small firms.

High tech trading, research and market watch systems are now widely available to smaller firms and individuals and the future firm will access them.

The future firm is now here and the new model will come to be the new benchmark for the market, despite the majors continuing to invest heavily in their vertically integrated models.