What does added regulation mean for advisors and clients?
Offshore financial advice has changed a lot over the years, increased regulation to protect investors is and always will be the key driver for change and rightly so.
Where these changes are being made to protect a client against loss however, they also create barriers that inhibit investors from placing their funds where they choose especially if an investor places their funds with certain types of known organisations or 'household names'. By providing a ‘complete solution’, clients are not only restricted to what the company in question will permit, but the structures themselves are laden with costs which are built into (hidden inside) the products. Additionally lengthy lock in periods especially in this era is not always at the best interest of the client, but more favourable for the company's in question.
The main issues that arise from these structures are firstly how restrictive they are for a client as they haven't appeared to move with the times, and secondly when an advisor is no longer able to earn remuneration as regulation changes reduce the amount of money that can be earned from the structure itself. The latter is not necessarily a bad thing as placing client money into whichever products will pay the most is not advice and is simply sales.
For the advisors who clearly explain the charging and remuneration structures correctly with their clients however, the ongoing changes will inevitably lead to these types of structures no longer paying introducer fees as we have seen already, and advisors will either need to move to a model that charges the client a fixed fee, based on how much money is being managed or, to look at the wider market where, there are a plethora of alternative options for IFA’s and their clients to invest in.
One solution which is becoming more and more common place is that of the ‘Investment Platform’. Open architecture structures that enable an investor to hold a number of investments in one place as a ‘living portfolio’.
The main difficulty advisors are facing is the transition from the traditional upfront remuneration model to a fee-based structure due to a sudden drop in remuneration. For some advisors this isn’t sustainable or even achievable and like we saw in the UK when RDR was rolled out, many advisors will leave the industry.
The transition from the traditional remuneration model to a new one doesn’t have to be that difficult.
If you would like to know more about how to transition your business away from the traditional life co model to a recurring income model, contact us today.