Divergence

There is a movie in the cinemas at the moment called Divergence. I’ve not seen it yet, preferring to wait for these things to arrive on iTunes so I can watch them in the comfort of my living room, avoiding rip-off cinema prices, sticky seats and anti-social cinemagoers using mobile phones and generally provoking my anger.

But, my hatred of the modern cinema experience aside, this movie does look rather good. From what I can tell by watching the trailer, it tells the story of a fictional world divided by factions based on virtues. Our leading lady discovers she is ‘Divergent’ and won’t fit in, before uncovering a plot to destroy her type and embarking on a no doubt rip-roaring adventure to uncover the truth. Compelling viewing, indeed.

Hearing the news that Old Mutual Wealth has acquired Intrinsic made me think about this movie and divergence in general. Leaving aside the other question of who takes their turn to buy Positive Solutions next (please don’t let it be us), it does highlight how the distribution side of retail financial services is changing.

On the one hand we have networks of ‘advisers’ offering access to a fairly limited suite of financial products to their customers. News of the Intrinsic deal came littered with words like ‘first-class proposition’, ‘investment solution’ and ‘advice relationship fully aligned’. They also used the word ‘headcount’. If I’m ever part of an organisation concerned with its ‘headcount’, feel free to mount a bold rescue mission, even if the risk of casualties is unacceptably high.

On the other hand, we have real advisers and Financial Planners; typified by small or medium size firms, starting with the customer rather than the product, often independent and highly qualified.

What happened since the introduction of the Retail Distribution Review – and possibly starting long before the RDR was a seed in the soil of the FSA – is a case of divergence.

It is difficult to know whether real advisers and planners have diverged from networks, or vice-versa, but what we now appear to have is two distinct communities operating within the same space.

This is not necessarily a question of independent versus restricted, although restricted tends to better lend itself to the sales approach. It is also not a case of profitable versus loss-making, although the same application can often be observed.

This is a case of a cultural difference between firms that want to sell products, and be rewarded for doing so, and firms that want to sell advice. We have different virtues. Both approaches are equally valid. The selling products thing only loses some validity when attempts are made to dress it up as advice.

Assuming all things in life turn out like big-budget Hollywood movies – and in my experience they often do – my next blog will explain that I have uncovered a plot to destroy advisers and must find out what makes us so dangerous before it’s too late. But that sort of thing could never happen. Could it?

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3 thoughts on “Divergence

  • This is true, Nathan! Where advice is the path to a product sale, I suppose technically it is still advice, but quite far removed from what advisers consider to be advice. Thanks for your comment.

    Reply
  • It’s all a conspiracy, Martin.
    Imagine it wasnt such a pain for clients to do the product provision bit themselves.
    We advisers could give the advice, and send the clients off to the product provider to buy their product.
    It would be clear who was an adviser and who was a product provider (the product providers could still have their headcount of salesmen, bless em).
    But of course, the clever product providers make it almost impossible for clients to buy the product themselves.
    The regulator is in on it too, defining advice as something to do with product.
    And the taxman with his sneaky VAT rules, making it more expensive to do advice without intermediation than with it.
    So, we cant just be advisers. We have to help provide product too. And that stops us from differentiating ourselves from the product salesmen who give a bit of ropey advice whilst flogging their gear.
    I may be paranoid, but that doesnt mean that they arent all out to get me.

    Reply
    • Thanks, Phil. I’ll subscribe to your conspiracy theory. It’s lovely to think we can focus solely on advice and pack clients off to execute on their own. In practice, there are still too many barriers to this happening smoothly and efficiently. This leaves clients needing a ‘one stop shop’ including advice and implementation.

      In terms of good news, we recently spent some time chatting to the FCA on the issue of advice being defined as product sales and it appears they are aware of this, with some positive noises about change in the future.

      Reply

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