I love the Nucleus census.
Each year for the last few years I've had the pleasure of reviewing and providing commentary on the research carried out with advisers and users of the platform.
There is always so much in it - but this year it packs a real punch. So where to start?
Last year, the census identified that only 15 per cent of advisers spend more than 40 per cent of their time with clients.
At the time, this figure surprised many and we used this as the basis for a broadly light-hearted video which considered the benefits of outsourcing investment propositions. Perhaps it’s a good starting point.
This year, that figure has only moved marginally from 15 per cent to 18 per cent.
If advice businesses are built on client relationships – and the feedback represents the wider market – then it’s still not a great result.
Where are the time constraints? How are advisers spending their time, and does the census deliver some answers?
Over half of respondents identified compliance as the thing that soaks up a lot of their time.
While advisers believe there's an increasing public demand for their services, the average number of clients per adviser has reduced significantly from 163 to 130.
Some 30 per cent of advisers are also turning away more than one in five enquiries, mainly citing ‘insufficient assets’ as the challenge (that is, they do not have a proposition for those clients which can be delivered cost-effectively).
However, the census does identify changes which could help address this.
Perhaps a change in charging structures could help firms to serve more clients?
Advisers are continuing to move to a blended approach with a third of all advisers now using a combination of fees and ad valorem charges (percentage charges based on assets).
There was a reduction from 73 per cent in 2018 to 49 per cent of firms in 2020 charging only a percentage of assets basis, and 34 per cent now adopt a combination charging model.
It may be that fee-based models could help cater to what are perceived as lower value clients.
While compliance was highlighted as a challenge, the introduction of the PROD rules under Mifid II may have helped some firms increase efficiency.
More than a quarter of advisers are in the process of reviewing client segments, and the number who don’t use client segments has reduced to just 16 per cent from 29 per cent over the past year.
What's interesting is the rise in the use of age and life stage as a factor when creating client segments. This has increased from 18 per cent to 45 per cent.
When we spent time talking to advisers about PROD last year, the majority agreed that segmentation had encouraged them to review the consistency of their service and investment proposition across different groups.
Individual client suitability still prevails, but it seems many firms have a more robust framework to support their PROD requirements which has helped with business efficiency.
As the saying goes, "necessity is the mother of invention."
Covid-19 has accelerated the use of technology in all businesses, and one of the top three capacity issues identified by 40 per cent of advisers and users was spending time where automation should be in place.
Pre-Covid, 30 per cent of firms were already exploring alternatives to traditional face-to-face advice and increasing their use of client portals.
Online review meetings could also help to support a cost-effective proposition for those lower cost clients.
Perhaps the biggest opportunity to deal both with the compliance challenge and insufficient assets is the management of the investment proposition.
This year the headline news from the census was that 20 per cent of respondents said they would increase their use of outsourced model portfolios, with 16 per cent saying they would reduce the use of in-house advisory models.
The challenges of advisory models are well documented.
These include built-in inefficiencies owing to the fact that every client is required to agree and confirm each time their portfolio is rebalanced.
In times of market volatility, this also means investments can’t be changed quickly, and may prompt Mifid II10 per cent drop reports.
The move to an outsourced investment proposition for many advice businesses can address some of these challenges.
Some advisers also expressed that the recent market challenges had made them reflect on their own investment expertise.
The use of active and passive investment solutions is now no longer binary, with only 8 per cent of advisers adopting solutions which are 100 per cent passive.
The largest proportion of advisers (34 per cent) adopted a 50/50 approach.
We are likely to see a continual rise in the use of blended investment solutions which not only support varying market conditions but can address cost challenges for clients.
To close, I suggest taking a look at our outsourcing video on our website. While it won’t win any awards for the soundtrack, it’s a good summary of the benefits of outsourcing.