Independent financial advisers rightly treasure their mantle of independence. To many it is a symbol of impartiality, distinguishing their service from that of restricted advisers at large firms. But in an industry where clients are demanding greater breadth of service, and where running an efficient business is becoming increasingly challenging, is independence coming at a cost?
Quilter Financial Planning has surveyed advisers with the aim of questioning where they value independence the most. The survey determines whether there is a middle ground between enjoying the benefits of being an independent adviser and working for a larger provider.
Badge of Honour
One of the key takeaways from the survey is that independent financial advisers are fierce advocates of their independent status. Many are opposed to giving up their hard-won independence to become a restricted adviser. They have studied hard to achieve their status and it is a badge of honour. Older advisers were particularly attached to independence. Some have been through difficult experiences with networks, where their ability and experience weren't respected, or where they found they couldn't run their business as they wished.
One adviser summed it up by saying: "I'm chartered, certified, have fellowships with multiple different organisations. I'm very highly qualified and, at the time, the network treated me like someone who had been in the business for six months." Many advisers have spent years - perhaps decades - building up trusted relationships with their clients based on an intimate knowledge of their clients.
Against this legacy, it is easy to see why advisers have concerns about ceding control of parts of their business to a third party. The survey shows concerns around flexibility.
Many advisers work hard to create the reputation and character of their business, which they are understandably protective over. In practice, today, white-labelling is commonplace and advisers should never have to give up their identity, but the perception lives on. And of course, advisers wish to run their own ship as they see fit - on the basis that they know their clients best "the wearer knows where the shoe pinches" as the old saying goes.
Growing your business
However, at a time when advisers' time is constrained, it could prove difficult to grow their business as they would like. According to the survey, half of advisers have ambitions to grow their business and client base over the coming year, yet 42% say that they will need help. Half of respondents cite administrative tasks being their greatest daily pain-point, with regulation and compliance being their greatest concerns.
Compliance, admin and legacy client costs can all combine to make requests from advisers far more time consuming and create a challenging environment to take on new business. One interviewee says, "I think the trouble is it just makes advisers look a bit silly really and a bit slow and irrelevant…I think because of the growth of the internet and online trading, we've all got used to being able to do things really quickly."
The survey establishes that financial advisers want to maintain their independence but are frustrated by the burdens associated with managing a growing client base. As a result, many advisers go through a platform selection process that allows them to outsource many of the admin tasks to a trusted third-party.
Outsourcing can offer a lot of benefits from an investing perspective. While aspects such as financial planning have the biggest impact on an adviser's relationship with their clients, asset allocation and the minutiae of individuals investment selection is less so: outcomes are important, but investment approaches are highly regulated and so often broadly similar for customers of similar risk appetite, stage of life, and quality of assets. The majority of clients need good investment management from a balanced portfolio of well-selected funds, but relatively few have very specific needs that require non-mainstream investments.
The efficiency benefits of looking externally could lead to many advisers adopting a hybrid approach. This would involve certain clients being advised on a restricted basis and others on an independent basis. A hybrid approach would enable the use of platforms that could digitise and automate clients' queries and requests that would normally be deemed administrative burdens.
Ultimately the value of independence is different for every adviser. Individuals that are content with the scale of their business can rightly maintain their brand of having a 100% unbiased approach to providing advice. However, to firms looking to expand their business, it is worth considering the degree to which outsourcing specific activities has a material impact on their ability to provide the best possible service to their clients - in many cases, there could be an improvement.
This post was funded by Quilter Financial Planning
