Market crash fatal for old-style advice industry – BJM PCS
The equity market crash and credit crunch will be the death of the old-style financial advice industry. That’s the market forecast from investment industry trend-spotters at Barnard Jacob Mellet Private Client Services (BJM PCS), specialist advisers to sophisticated investors and high net worth individuals.
Tony Barrett, head of Wealth Management at BJM PCS, says consumer distrust and cynicism are inevitable after market falls of up to 60% amid press reports of excessive rewards in the international financial services industry.
He points out: “You can expect very jaded perceptions from saver-investors who have to work flat out to repair damage to their pension planning while well-remunerated financial industry personalities continue to do very nicely.
“Yesterday’s apathetic consumer is likely to be replaced by an extremely alert, even mistrustful consumer.”
In the BJM PCS view, the old advice industry was often driven by intense, but perhaps narrow product knowledge. Broad and deep knowledge across various asset classes was less evident. Advisers tended to focus on the transactions they were familiar with and that featured prominently in the offerings of the companies with which they were aligned.
“Intense questioning by sceptical consumers would expose such limitations,” says Barrett.
“The outcome would probably be ‘no sale’ – potentially disastrous for advisers dependent on sales-based commission.”
In recent years, regulators have made increasing demands on advisers. FAIS legislation is one example. In contrast, recent market experience was a Big Bang approach to consumer awareness.
“FAIS encourages a ‘show-me-your-credentials’ mindset,” says Barrett. “After last year’s market collapse this could well be followed by a ‘show-me-your-research’ trend.
“Only well-resourced professionals can provide both personal credentials and independent, objective, authoritative and detailed research to substantiate their views.”
BJM PCS believes informed consumers will increasingly seek:
- A holistic advice-orientated business model rather than a model based on the product or transaction
- A differentiated investment platform based on sound research
- A client-centric service model
- A professional staff with appropriate credentials
- A system of remuneration that serves the best interest of the client
“Such expectations are already evident at the top end of the advisory market,” adds Barrett. “We believe these demands will increasingly be voiced by mid-income groups in other market segments.
“We seem to be approaching a new future in which some consumers will buy low-advice, off-the-shelf financial products for easy-to-assess needs while at the higher end of the market insightful investment consultancy will be demanded. The value of good advice from top professionals will be well appreciated and consumers will pay quite readily for it.
“Product and advice will not be bundled together in the old fashion. The era of the salesman will be followed by the era of the trusted adviser. It’s an exciting prospect … at least; it is for the true professionals.”
