Predicting the future. Tighter international regulations and increasing consumer expectations will bring greater disclosure and transparency as advisers move towards building more sustainable business.
1. What does the future hold for offshore investing in light of the non-disclosure crackdown?
There will always be a place for legitimate financial planning. International investing can offer credible solutions to both local and expat investors in all markets and I see this demand continuing to grow.
For example, compared to local products, investing in an international bond may offer many advantages such as tax deferral, diversity of investments and currency, portability, consolidated reporting, inheritance and succession planning, and the opportunity to place assets in a country that is well regulated and politically and economically stable.
We are seeing a number of markets get tougher on non-disclosure of assets. Tax sharing agreements are already in place between many jurisdictions, and this will only increase, especially under the Common Reporting Standards. In the future there will be nowhere left to hide – people should legitimise overseas assets and then structure the assets efficiently, e.g. through an international bond (where tax is generally only paid on encashment).
2. What is the biggest driver of change?
Arguably the key driver of change is recognition of the importance of good customer outcomes and an important step is regulatory change. Regulatory transformation will gather pace and, when combined with rising demand and expectations from consumers, it is clear current practices will need to evolve.
I envisage market practices shifting away from being ‘sales’ led to being ‘advice’ driven. This will lead to more sustainable adviser businesses, better solutions for the customer and greater ongoing customer care.
Something high on our agenda is working on how we can help raise standards in the industry and improve customer outcomes. Regulatory change is a good thing as it forces through behavioural change leading to higher standards of advice and improved customer outcomes.
3. Do you think commission will disappear like it has in the UK?
Commission isn’t necessarily a bad model; it is an effective means of the adviser being remunerated. It can also help ensure less affluent customers receive valuable advice. For example, in the UK, removing commission has led to most Banks exiting the advice market, and arguably many consumers are now underserved.
Whilst commission might not be banned completely, I do expect tighter regulations and increasing consumer expectations to ensure greater disclosure and transparency. Upfront commissions divorced from an ongoing relationship can drive the wrong behaviours. To survive and grow, advisers need to build a sustainable business model and rely less on high up front commissions. Typically it is the on-going commission and fees which builds business value and as a result sustainability and profitability.
4. How will adviser businesses evolve?
Many adviser businesses have started to move toward building a more sustainable business, and I see this trend continuing. Those who don’t evolve will eventually disappear as we have witnessed in the UK.
Evolving a business is more than just moving from upfront commission to ongoing commission/fees, it involves reviewing all business practices to ensure the customer is at the centre of their business. If customers are driven away, income is destroyed and business value, sustainability and profitability decreases.
Steps such as building a clear business plan and strategy, investing in a Customer Relationship Management system, developing a robust advice process and investment process and constructing a holistic financial planning business can make a real difference to sustainability. Advisers need to identify the parts of their business that add value to the customer, and focus on those elements.
5. How will technology evolve?
Some international providers and advisers have been slow to embrace technology, but as margins continue to put pressure on all parts of the value chain, and adviser and customer expectations increase, technology must be embraced and solutions found.
Customers and advisers now seek greater use of technology with a desire to be better connected to their investments. More and more business is being written and administered online, making businesses more efficient and more effective. More online tools are being developed, making it easier for advisers to manage and review their customers. Systems which allow a three way dialogue between the customer, adviser and provider will be the real winners.
6. What trends do you predict for the international investment industry?
A trend which we have seen in the UK market, and which we are now seeing in the international market, is the growth in outsourced investments. This involves outsourcing to a professional any elements of the investment process, be that fund selection, asset allocation and/or portfolio management.
Regulatory change and greater transparency in many markets is resulting in more advisers focusing on improving customer outcomes and managing business risk. By using an outsourced investment solution, advisers recognise they can engage the skills of investment experts to help reduce the investment risk and administration burden to their business. This in turn allows them to spend more time on providing long-term financial planning to their customers.
The move to outsourcing investment solutions may also help the market avoid the unusual or esoteric assets which have negatively impacted a number of customer portfolios.
7. Which markets do you predict will be core growth markets?
Asia is fast becoming one of the wealthiest regions. Hong Kong is reported to have the highest number of billionaires per capita and this trend looks set to continue. These highly wealthy individuals often require more complex planning solutions to meet the demand for higher levels of life protection together with sophisticated investment options.
Africa is another big opportunity. It is a vast continent, made up of 54 countries, and is arguably the continent with the biggest growth potential in the modern world. Governments are starting to build stable democracies with social and economic structure, making it more attractive for foreign investors. Being part of the Old Mutual brand, an extremely powerful and well recognised brand in parts of Africa, gives us an advantage.
8. How will the provider and adviser landscape change?
As international markets grow, so too will new entrants. Establishing an international business takes a significant amount of time and resource. Not even large well established providers succeed in all markets. Each region is different and needs be treated as such, with local values, culture, regulations and customer needs being taken into account.
Adviser businesses will evolve, successful ones will grow and become more customer centric, and we may see consolidation activity within the industry. The need for advice will continue to strengthen in all markets and the adviser and customer will look for ever more sophisticated and flexible solutions.
The wealth management business model is how we believe providers should be structured for future success. By offering customers more of the value chain businesses can meet more of the needs of customers and provide compelling and competitive solutions.