Ian McKenna: Future of advice is restricted

With as many as 50% of advice firm owners looking to sell in the next couple of years and several private equity-backed consolidators looking for extended runways to deliver their business plans, we can expect an unprecedented level of M&A activity.

What will this mean for adviser technology?

Market-leading technology propositions are a key element of scaling an advice firm from scratch and then exiting, leaving it to continue to grow successfully. Benchmark Capital and True Potential are excellent examples of this.

However, most advisers do not have resources to build everything from scratch, so will be using one of many other options to run their firms.

With so many sellers, buyers can be more selective and there is significant evidence already that firms with all their data in good condition are far more attractive.

For most firms, the core client record is maintained in the practice management system.

Buyers are always going to want to use the same system across all the businesses they acquire, although, even then, there are specialist skills needed to bring together the data from multiple firms.

Outside of those firms who have built their own complete systems, there are really four key players to consider in the practice management market.

Intelliflo supports approximately 50% of the consolidators and Iress around 25%, with the rest spread among others. Dynamic Planner, which does not operate a practice management system but has almost all the rest of the jigsaw, also has a significant market share among consolidators.

Equally, Fintel is rapidly developing a comprehensive proposition through M&A that firms can join as a support group rather than needing to commit to full network membership.

Again, Fintel does not have an in-house practice management solution but it does have a long-term partnership with Intelliflo and took a 25% position in startup Plannr last year.

Moving to a consolidator is a major factor in advice firms changing systems these days and may trigger consolidation among the smaller UK advice tech players.

We can also expect to see international tech providers attempt to enter the UK market. Their main challenge will be supporting all the additional functionality necessary to meet the generally higher regulatory standards in the UK.

It is important to recognise these changes will almost certainly lead to an increase in restricted advice, but this should not lead to any real consumer detriment. The independent versus restricted debate is a very 20^th century construct. In a digital world, true independence is, at best, uneconomic and, at worst, impossible.

There is a vast difference between the digital enablement of platforms, asset managers and insurers. This, in turn, impacts the operational costs/service levels of advice firms. Why should an adviser absorb the increased cost of dealing with inefficient providers, or pass them on to the client?

Post-RDR, an adviser’s ‘product’ is the advice. This will be a far greater determinant to the long-term consumer outcome than provider selection. Digital enablement provides better outcomes at scale and can open the doors for advisers to service far more people economically if they want to.

There will still be a role for some time for a white-glove, very personalised whole-of-market service, but it is likely to be very expensive relative to the newer efficiency-based services.

Restricted organisations are arguably best placed to deliver because they can scale more easily. In the advice tech market, I see a space for one or two extra key players to keep things competitive, but they will need compelling propositions.

Ian McKenna is founder of FTRC