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Huge changes for advisory sector in 2013, predicts expert

An increasing number of businesses will fail, new products will emerge and some product providers will start distributing directly to customers in 2013, says a wealth management expert, as part of sweeping changes he predicts for the financial services industry next year.

19 December 2012

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Roger Brosch, CEO of national advisory group Foster Denovo, also believes that successful firms will be those that offer clients a proposition focused on value and an outstanding client experience.

“The industry has seen a huge amount of change over the past year,” said Brosch. “Advisers have been distracted by time-consuming administrative tasks in order to be RDR-ready. As a consequence, they have either had to work harder, for longer hours, or their revenue levels have been impacted.

“Next year the industry will continue to evolve and there will be some significant changes to the sector.”

Brosch claims 2013 will be another year of consolidation. “I think we will see a number of businesses failing, and others simply won’t feel confident battling forward on their own – some will begin to realise the value of becoming part of a larger entity with the resource and management capability to support their transition.

“The financial resource requirements (FRR) will further affect those firms which are already struggling financially, and these will be the ones that are either taken over or cease trading,” he continued.

“In quarters three and four of 2013, we will see a swift separation of the ‘best’ from the ‘rest’. Where large numbers falter, others will thrive.

“Those that don’t give thought to their client proposition now will struggle to survive. The provision of financial advice is not simple – it requires real planning and structure,” said Brosch.

New products and services will also be introduced to the financial services sector, believes Brosch. “In the midst of all the sector transition, some advisory firms will innovate and look at how they can operate differently. As a result, I believe we will see new products and services starting to emerge, especially towards the end of 2013,” he said.

“The new products and services will be geared towards the specific needs of clients such as lifetime cash-flow forecasting, products for people nearing retirement, or bespoke family protection and estate planning solutions.”

There will also be a shift in the way firms provide services to clients. “Product providers will have to find new ways to retain and attract clients; they will need to reinvent their business models in order to secure distribution.

“I envisage a number building their own distribution channels and going straight to market. We will also see a number going into restricted relationships, and those who move into an administrative model will invest further in platform development.”

Brosch also believes that consistency is key. “The implementation of RDR has – undoubtedly – put increased pressure on advisers, and a large number of firms are struggling to meet the qualification requirements. Many have inconsistent advice processes and unclear charging structures, and in some cases their margins are still too narrow to deliver an enhanced client service.

“Firm-level charging is a RDR requirement – there needs to be consistency in proposition, advice and the charging structure. Weaker business models will certainly come under revenue pressure,” he predicted.

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