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Is Mifid II the final nail in the wealth advisory coffin?

Is Mifid II the final nail in the wealth advisory coffin?

The march towards discretionary has continued unabated over the past five years.

The latest round of trading updates from national wealth management firms underscores this shift.

Over the three months to the end of December, Brewin Dolphin recorded total discretionary assets of £35.3 billion, boosted by an internal transfer of £0.2 billion to its discretionary service. In comparison, the group’s advisory assets totalled £2.3 billion, down from £7.5 billion five years ago.

It was a similar story at Charles Stanley, where £0.2 billion of assets transferred over from advisory to discretionary over the fourth quarter of 2017. Discretionary assets stood at £12.6 billion, which compares to £2.1 billion in advisory managed and £1.6 billion in advisory dealing at the end of December. In comparison, advisory managed assets totalled £2.7 billion and advisory dealing accounted for £2.5 billion five years ago.

The shift towards discretionary is understandable, given the growing costs and regulatory requirements that are now involved with investment advisory.

Some commentators suggest that Mifid II, which came into force this January, could finally represent a death knell for advisory.

What the new rules mean

Under the new rules, firms must provide advisory clients with a suitability report that specifies how each piece of advice that is given meets the client’s circumstances.

This needs to happen whether a transaction is made on the back of a client discussion or not, making it more time-consuming and expensive for firms to offer investment advisory.


Although Charles Stanley does not actively market investment advisory to new clients, head of investment management Gary Teper (pictured above) said there were no plans to withdraw the service.

Nevertheless, he said the move towards discretionary is logical given the costs involved with advisory.

‘There is no doubt that advisory business by its very nature is more time-consuming and can be more challenging to operate than discretionary business,’ he said.

Aside from the costs and time involved with advisory, he said discretionary is often viewed as the most appropriate service for the client.

Rob Burgeman, an investment manager and divisional director at Brewin Dolphin, agrees that discretionary tends to be the preferred route these days.

‘If you have got an adviser you trust, why would you not want to be a discretionary client? It cuts out a whole layer of time and delays in the decision-making process.

‘One of the big trends of the last 25 years is that people are perhaps cash and capital-rich but pretty time-poor, particularly if they are busy professionals. In a world where markets themselves have become more dynamic and fast-moving, people do not necessarily have the time to devote to their investments,’ he explained.

He added that the growth of discretionary underscores the adoption of wider wealth management services – and a move away from transactional broking.

Can investment advisory survive?

Teper suspects it can, but will mainly be used by knowledgeable and sophisticated clients.

‘It will probably still exist, but it will become increasingly niche and specialised. For example, a recently retired person who has worked their whole career in the City and has been an investment manager might like the concept of an advisory relationship.

‘They can speak to a professional to get an idea of what is going on, but they are very much self-directed and aware of what they are doing,’ Teper said.

Paul Killik, senior executive officer at Killik & Co, believes investment advisory can survive – in spite of the pressures. He estimates that over half of his company’s assets under management, which total close to £6 billion, are advisory. Killik & Co remains committed to offering the service and actively advertises it.

‘It is an important service and clearly people want it, but it is becoming tougher and tougher to do it – that is the trouble,’ Killik explained.

What clients want

Despite the costs, Killik says it is important to focus on what clients want - and from what he has seen, demand remains strong for advisory. For example, Killik & Co continues to attract clients from rivals who are withdrawing from the space. From the client’s perspective, one of the main advantages is that VAT is not charged on advisory fees.

In Killik’s (pictured above) opinion, advisory represents a good option for younger clients who are new to the world of investing because it helps to educate them about markets.

‘They can learn from talking to someone who is doing it full time and they will gain experience in that way. If they hand over the money to be managed, they won’t have a clue what is going on,’ Killik explained.

In his view, the industry has become too obsessed with producing better quality revenues and has lost sight of what the client wants.

‘The truth is that profit margins on discretionary are much better than they are on advisory business, but that shouldn’t be a reason for doing it or not doing it. We have to give clients what they want,’ he said.

He added that advisory provides great training for investment managers.

‘We get some bright people on the other end of the telephone, so they have got to know what they are talking about,’ Killik concluded.

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