Updated: Dec 17, 2020
In January of this year, ‘Death by a thousand cuts (Part 1) was published, where we examined how the financial services industry would likely change which would ultimately lead the ‘offshore’ advisory service following the same journey as ‘onshore’ advice. That likely change is now an inevitable one which is leading toward fee based advise.
‘The world is constantly changing, and Financial Service is not immune.
Within the offshore financial services market place, the significant changes seem to be – as usual – around regulation, and particularly the cost of advice’
(Death by a thousand cuts part 1).
If we follow what happened in the UK, the removal of upfront commissions for advisors and advisory firms alike meant that the only option available was to change their business model(s) from one where revenues are largely generated by products and services paying upfront commissions with no direct payments made by clients. To a business model that charges the client a flat fee of between 1% and 1.5% of their total holding that is being managed by their advisor or advisory company.
Coronavirus has made 2020 a difficult year for many industry sectors globally as well as forcing people to take stock of their lives and slow down. Being in lock down has given investors a lot more time to review the advice they are being given in addition to reviewing the products they are invested in and the charging structures that are built into their portfolios.
Regular savings plans which were once the life blood of the industry have all but disappeared due to regulation and restrictions, pension transfers are coming under much scrutiny, commissions have and are being capped within products and structures and we are fast moving toward the final stage where financial advice becomes fee based.
Some advisors and advisory will have been making this transition for a couple of years already and will fully transition without any issues. Others made a change to the services they provide and to who by moving away from ‘retail clients’ to offering advice to ‘certified HNWI and sophisticated investors’ who have the required capital to invest in more specialist products offered by specialist product providers.
For those who have not yet started either of the aforementioned changes, the future could be incredibly difficult. The RDR which changed the face of financial services in the UK forever began in 2012 and by 2015 more than 11,000 advisors had left the industry. These very same changes are now present in the offshore market.
If you are an advisor or advisory firm who are yet to begin transitioning or who would like to generate help with how to bridge the transition, we are able to discuss and provide information with how to do so.
Contact us today for an informal discussion.