Mid-sized dealer groups could be squeezed out of existence by the upcoming Future of Financial Advice (FOFA) reforms, the head of Snowball Group said yesterday.
Snowball managing director Tony Fenning forecast a barbell-shaped industry after FOFA, in which large institutionally-aligned dealers and boutiques benefited but few businesses in between survived.
“The focus on advisers and not on the consumer in the way that dealer groups are constructed is deadly, and then you throw in dramatic regulatory change and tinkering with people’s revenue streams without sufficient notice and you’ve got the formula for ‘get up or get out’,” Fenning said.
His comments were part of a roundtable discussion with industry counterparts on the reforms. The discussion formed a white paper entitled: “Beyond FOFA – five fault lines shaping the ‘real’ future of financial advice”.
Commentators said it had initially appeared that margins were simply shifting to different points in the value chain as platforms extracted concessions from fund managers, new platform providers squeezed incumbents and distribution groups sliced margin from platforms and asset managers.
However, the margin shifts were set to choke off dealer group revenues.
Fenning said technological innovation could be a positive, making the broader advice market profitable to service. He said the Internet had lowered the cost of banking transactions from $3.50 each to about 8 cents.
“That’s the kind of paradigm shift that we’re going to see [in wealth management],” he said.
Technology changes within the industry had not kept pace with consumers’ needs or capabilities, he said.
“The client is now saying: ‘Give me Internet banking for the whole of my financial services,'” he said.
“The shift is that all of the [technological] stuff that was built for advisers, it’s now got to be built for clients.”
FPA chief executive Mark Rantall agreed, saying the key was a clear value proposition, supported by a robust back-office system.
“To get this right, we need to start with the consumer and work backwards,” Rantall said.
