Smith discussed many examples of organisations that have gone out of business because they are not prepared to make changes and said the same could be said for advisers.
He said: “Advisers see their current business model working well and their clients aren’t complaining and so they don’t want to change which is fine but the market will shift and they will be left with a model that is no longer fit for purpose.”
Smith said the market was already changing with advancements in technology and especially AI meaning people who would normally pay advisers to manage their portfolios or tax planning can do this at a much lower cost.
“A lot of the benefits that people had historically been hiring financial planners for are going to be able to be done at much lower cost either by the customer themselves, or by other advisers who are embracing technology to do number crunching and data analysis.
"So the value going forward really is going to be in that personal relationship and being uniquely human with clients,” Smith highlighted.
Regulatory pressures
Smith also pointed out the FCA’s consumer duty specifically referred to percentage charging businesses and suggested the regulator is “not happy” with the existing model.
He said: “The FCA are not a pricing regulator they have made that clear but they will be putting those firms that choose to stick to this outdated model under the microscope.
“It is not going to let this go anytime soon, so if a firm doesn’t want to be dragged across the coals by the FCA then changing models may be something to look into.”
There are a number of reasons why Smith thought firms are now starting to consider a subscription based model. This included pressure from existing clients, increased transparency in the industry, more publicity and regulator pressures.
“Everyone is certain, unlike other pieces of legislation that have been brought in, the consumer duty seems to be the one the FCA are really getting their teeth into and are keen for it to be implemented.
“And so firms like ours are just getting ahead of the inevitable challenges which are going to come our way down the line,” Smith added.
Smith highlighted he now tends to have at least one call a week with advisers who are looking to change their charging model.
Future of percentage charging
Smith said the charging structures of firms won’t change overnight and suggested the changes would come as a result of “evolution not revolution”.
He said: “Many people in the advice sector are nearing retirement age and are not about to make a lot of changes if they are going to leave the sector in a couple of years and for that reason there is a lack of urgency to make changes to fees.
