As advice firms, many of us operate in a challenging environment. One that expects us to keep pace with the demands of ever evolving systems, regulation, and costs.  

    Let’s take, for example, technology, which forms an integral part of any advice business and allows firms to streamline, safeguard and provide excellent service. But with ever increasing options and more of these technology providers looking to become a ‘one-stop-shop’ in an urge to corner the market, how can we be expected to keep up?  

    More options mean greater competition, which is an integral part to any effective and efficient market. The pre-eminent firms rise to the top… or at least in theory. Inevitably this is a conundrum in itself – competition arguably drives growth, and thus provides an attractive proposition to investors. We see the likes of Nucleus, Embark and CashCalc being snapped up by such entities for potentially huge sums.  

    I read – what feels like weekly – about such firms and consistently see terms such as ‘rapid expansion’ and ‘delivering strategic objectives’; but how do we as firms know this is not simply return on investment in disguise?  

    It may be that our industry is transitioning to what may be coined ’the consolidation stage’ whereby firms are seeking the ‘one-stop-shop’ enigma and aiming for a larger portion of their market share. Or perhaps it was always the case.  

    Arguably this may drive a reduction in costs and greater efficiency in a firm’s operations, although the economic conjecture suggests that the industry phase following consolidation is decline.    

    What does this mean for us?  

    As founding users of the Nucleus platform, the James Hay acquisition could certainly be termed ‘the end of an era’ and while we do not yet understand all the implications, we hope that Nucleus continues to maintain the good customer service and personability that firms like ours have become reliant on, and that clients trust.   

    I for one believe it’s a massive opportunity for investment and change for the better, at a time when advice firms potentially need it most.  

    At AMFA we’ve become reliant on third-party providers and within the current climate we often discuss the benefits of outsourcing, but to what extent do we understand the impact that outsourcing has on how we operate as businesses? The more functions a firm outsources, the more they may find themselves at the whim of the actions other companies and as such it becomes exceedingly difficult to plan.  

    Many small businesses will outsource the ‘usual’ functions such as IT, HR and in many cases compliance, and operating such a hybrid model is often considered to be efficient and conducive to good business. But what about the functions that were once at the core of financial advice?  

    Take paraplanning for example, a function performed by skilled employees that is critical to meeting several of a firm’s regulatory and compliance obligations. Now firms are faced with a decision: the cost of hiring, or training, a skilled and qualified paraplanner may no longer be feasible in consideration of all other costs a firm now faces.

    Instead, they could look to outsource.  

    In the same vein we must also consider the recent pandemic; faced with home working and no commutes, many paraplanners may be thinking about striking out alone or joining one of the now many outsourced paraplanning firms in the market.  

    When you consider outsourcing in conjunction with the consolidation we are observing, how do firms decipher which service offerings are best for them and their clients? Surely increased consolidation in the market means less choice?  

    Some may feel that plumping for the large and the well-known is the best way to effectively achieve this. A contrarian view would support the fact that better products can in fact be found by supporting the newer technologies and processes, such as those less well known, or even developing something themselves. How many do we need to ‘demo’ to find the right one?  

    This breeds an entirely new argument, in an industry with spiralling consolidation coupled with other worldly insurance premiums and regulatory fees; how are firms expected to invest and improve?   

    Time to regain control?  

    A consideration of many is the growing number of white label platform options coming to market. In a bid to re-gain control firms could be driven to set up their own platform built on such infrastructure, if they can accommodate the capital adequacy requirement that is.  

    Firms like ours have grown and matured in parallel to an ever-changing regulatory environment operating with client outcome and ‘treating customers fairly’ at the very core. As we chase to keep up with a wavering industry, can we still be certain that these third parties are still delivering the client outcomes on which our initial recommendations were based?  

    It certainly feels as though the industry, and those operating within it, are taking a step into the unknown let’s hope that ‘the grass is greener on the other side’ – potentially! 

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