This article is part of the Morningstar's Guide to What the Experts Say. Click here for our edit on what the professional investors think about economics, equities, bonds, financial advice and portfolio construction.
Financial advisers have been sacking clients – as they are no longer cost effective to serve. Over the last year, advisers sacked an average of one in six clients, as their investment portfolios of less than £50,000 just did not make business sense to run.
A recent survey by asset manager Schroders calculated similar figures – estimating that 60,000 clients have been dumped by financial advisers since the Retail Distribution Review was rolled out at the beginning of 2013.
Mark Polson of the Lang Cat said that regulation such as RDR far from making life cheaper and easier has made life more expensive for advisers and in order to “recapture the glory days, people have put their prices up”.
These factors are contributing to feelings of distrust among investors, although experts deny that the industry is in a trust crisis.
Speaking at the Morningstar Investment Conference a panel of advisers said that while there have been mistakes – such as the Keydata default, the Equitable Life scandal and structured products losses – there was not a crisis.
“There is a lot more awareness about the costs inherent in the financial advice industry and a new realism about investing generally,” said Jonathan Eley of the Financial Times Group. “If there was a crisis of confidence there would be far fewer people using advisers.”
Nick Bamford of Informed Choice agreed saying that the adviser client relationship must be based on trust, and has to be nurtured.
Nevertheless, there has been some backlash against the industry and new model advisers have sprung up to meet new demands for modern money management.
Among those championing change was panel member Charlie Nicholls who founded Money on Toast, a website that builds investment portfolios using algorithms.
“People are trusting algorithms with large swathes of their lives – one in five marriages in America are the product of a relationship matched by a computer,” said Nicholls. “If you are going to trust algorithm to determine the rest of your love life, then why not your trust one with your money?”
Nicholls said that the method also helped to build up trust with clients, as a computer is incapable of having a bias in the way a human may do towards a certain asset manager or sector.
“We find that our clients associated an adviser with a sales person – and a computer doesn’t push products like that,” he added.
Chris Williams from the Institute of Financial Planning agreed that the advice industry had to adapt and innovate to meet the changing needs of investors.
“I think we will see a growing number of investors go online to get advice,” he said. “Almost everything can be automated apart from the dissecting of estates in divorce or death work. The industry has to stop being so arrogant – it’s up to us to adapt not investors.”
