In 2022, Seccl said that positive attitudes towards providers were on the decline and found 69% of firms are considering parting ways with their platform.

The survey also found 44% of advisers are considering investment platform ownership.

Mark Sanderson, managing director of Morningstar Wealth, told International Adviser that he thinks the number of advisers taken on the platform responsibilities is not as high as many would think.

“I don’t think anyone said they can be platform providers,” he said. “I would say it’s hard enough to be an adviser. Do you really want all the hassle of managing technology and building your own, when you can actually just be exceptional at the thing you do?

“Most of the adviser firms I talk to don’t want to be a platform. They want to be the best adviser they can be.

“I think for those who really want to go the whole hog and be their own platform that is a small cohort, and they should do that because there’s great solutions out there for them.

“But I think for most advisers, that’s not what they want. I think they want their customers to experience their brand, their workflow, advice process and CIP. But you can do that with firms like us without taking all the risk.”

Consumer Duty

Another big issue facing the whole wealth management spectrum is the Financial Conduct Authority’s (FCA) Consumer Duty.

The UK regulator said it will look to fundamentally improve how firms serve consumers. It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.

There are also ‘four outcomes’ which are a suite of rules and guidance setting expectations for conduct in four areas such as:

• the governance of products and services;
• price and value;
• consumer understanding; and
• consumer support.

Sanderson said: “The Consumer Duty codifies what good firms are already doing. It was interesting to hear the regulator say recently that we think people have a kind of superficial view on Consumer Duty.

“Part of the problem for good firms doing the right things is that they are saying ‘we are already good here’, and maybe not diving as deep as they needed to. I think a lot of those firms will be on that and fix that really quickly.

“From our perspective, we were surprised how much work we had to do on the consumer communication part. How do you communicate with someone and really help them understand what you’re saying?

“When you look at your terms and conditions much of that is geared towards protecting the business – but how much of that is geared towards protecting the consumer?

“The Consumer Duty turns that on its head. That’s probably where firms like ours that are doing the right things have the biggest lift. If I was going to give a document to a relative, would they genuinely understand it?

“I think advisers just need a bit of help from providers about transparency, because that’s big for advisers as well. If we go back to the principle of simplify, not complicating, I think it is a really great thing that will lead to great customer outcomes.”

Deadline issues

The FCA is giving firms until 31 July 2023 to implement the new rules for all new and existing products and services that are currently on sale.

But a Copia Capital Management survey in March 2023 found 73% of financial advisers are not ready to implement their Consumer Duty requirements and 65% said they were lagging behind with the regulation.

Some 8% said they hadn’t started working on the Consumer Duty yet.

Sanderson said: “You should have definitely started working on it by now. It depends which tactic the regulator wants to take, and I think the rhetoric from the regulator has been if we can see progress, then it will give people time to maybe organise themselves a bit better.

“I think if the regulator says, you just haven’t tried, then we may see a much firmer hand taken by the regulator.

“I think most firms find themselves in that first camp, which is trying to do the right thing, and maybe firms have started a bit late, or to the regulator’s point, maybe didn’t think it was quite as much work as it was.”

There are pioneer firms in the industry looking to step away from the good old days of commission towards fee-based practices. It is a slow change – but any movement is progress.

Another area of focus for the offshore market is the growth of outsourcing.

Mark Sanderson, managing director of Morningstar Wealth, spoke with International Adviser about the rise of outsourcing in the offshore advice world.

He said: “It’s a good thing and it’s great for best practice, which we’ve been heavily involved in with International Adviser over the last couple of years. Advisers realising what the customers and investors want, which is advisers to spend time with them and understand their goals.

“The more time advisers can spend doing that, and not worrying about investments, or technology, the better outcome it is for a customer. We have been pushing really hard to get advisers to modernise, and they’ve done that they’ve done that really well. I think they’ll continue. I think regulation always helps.

“I think people thinking about the value of their business, and when their business is organised on a single platform and a small cohort of DFMs, and you don’t have a wide array of products and investment managers – there’s more value in your business. It’s easier to sell and it’s easy to value. I’m really optimistic about the international market.

“I think the expat cross-border advice market has really matured in the 15 years I’ve been there. If it follows the UK, US and Australia in terms of regulation, the international advice market can be a leader in the next five-to-10 years. Because of the complexity of advice, I think the international advisers can really start to lead and that would be the next step.”

Regulatory changes

As Sanderson says, many markets in the international advice space still need to catch up to the likes of the UK, Australia and the US in terms of regulation.

So, what do places like the UAE, Hong Kong and Singapore need to do to bolster their regulatory frameworks?

Sanderson said that he wants to see client value for money as a “primary focus” in these markets.

“This is because I don’t think there’s much maliciousness out there,” he said. “I think what’s actually happened over the years is that poor quality product has found its way into the market.

“I think having a more prescriptive outcome on where advisers really need to focus advice and having a clear outcome of how an adviser measures the success of advice would be really good.

“I spend a lot of time with regulators in the UAE, and I think they are making good progress. One thing I will say about Dubai, and it’s true of a lot of markets, is that the regulators aren’t anchored to one way of working. They are open to engage with the industry and really driving things forward. As long as that’s happening there will be good outcomes.”

Unregulated investments in the UAE?

One area that the Securities and Commodities Authority (Sca) has been looking to stamp out is unregulated investments.

In January 2023, the UAE’s SCA launched a campaign to crackdown on unlicensed financial services offerings.

Sanderson added: “SCA had a go at this before and it didn’t quite land as they wanted it to, so they have pushed harder this time. I think the regulator is looking to force some accountability for the products that advisers are choosing.

“There’s a lot of great firms now in the UAE that have been more selective about the types of things they choose, have got their own due diligence processes, and make decisions about central investment propositions.

“It’s not just about it all being left to the advisers to choose. I don’t think it is maliciousness. I think due diligence on funds, investment managers and products is hard. If you are left your own devices, you’re not going to get it right all the time. We saw that with Sipp operators in the UK.

“I think it is a forcing function for the regulator to say we care about this, and you should care about it too. I think if the industry demonstrates that it cares about it as much as the regulator, it doesn’t have to be a big dramatic thing.”

Power grab

Aside from the UAE, Asia is also a big focus for Morningstar Wealth.

The region is reportedly undergoing a power struggle between Hong Kong and Singapore in the fight to be the strongest financial centre.

Sanderson said: “There’s a strong, long standing expat community in Hong Kong. They’re going nowhere. There’s a lot of great work for people there and advisers know that.

“I don’t think this is obvious to say that as China and Hong Kong have deeper ties, people will pick up and leave and go to the next place which is Singapore. I don’t think that follows.

“In terms of expat advice, there are still plenty of expats in Hong Kong and they probably now more than ever need good advice.

“Maybe there are people who are considering the tax efficient return home. I think people’s next step when they are expats is to go back home rather than to another hub.

“If people are becoming less certain about a place as a long-term home for their family, the need for advice increases – it doesn’t decrease.”

South Africa

Another region suffering a turbulent period is South Africa. In February 2023, South Africa was placed on the greylist of the Financial Action Task Force (FATF).

The country is a “jurisdiction under increased monitoring” and it has to actively work with the FATF to address strategic deficiencies to counter money laundering, terrorist financing and proliferation financing. South Africa was the second G20 country to be on the greylist after Turkey was added in 2021.

But Sanderson says that South Africa is a “good market for growth” for Morningstar Wealth.

“By large, local service providers down in South Africa are good,” he said. “The global and offshore capability can improve and that’s how we think we can help, either directly or in partnership with firms that are on the ground there.

“The critical issue advisers are trying to solve was how do we connect all our systems and data together?

“South Africa’s a great market. When greylistings happen, so far everyone that’s coming out the other side of that has been a better place for consumers as a result. It is a great market for us and one that interests us.”

With the awards’ focus on encouraging firms to incorporate best practice in their business, from client service and investment planning to teamworking and back-office support, this chimes with our commitment at Morningstar Wealth Platform to empower investor success based on great advice. We were delighted to again sponsor the awards, the winners of which were recently revealed for 2022.

I was pleased to learn that across all five regions, ‘Excellence in Investment Planning’ and ‘Excellence in Client Service’ were the standouts in terms of entry numbers. The enthusiasm of advice firms to put themselves forward and the standard of submission in these two key areas bodes well for the future of quality professional advice.

Communication and teamwork are key

Client service relies on good two-way communication. While the pandemic did immeasurable damage in many ways, it also opened up different methods of keeping in touch with clients.

Letting go of the reliance on in-person face-to-face meetings means we’re hearing about clients having more time with their adviser across the year using a hybrid approach of face-to-face meetings, online meetings and calls.

No one would have chosen how this came about but it’s a great example of how change can make better use of everyone’s time, benefitting clients.

Quality client service nearly always involves a team, however there were surprisingly few entries for ‘Best Support Team’ across the regions. It would be good to see that change in future, with greater recognition for all those who play their part in helping clients achieve their goals.

When it comes to investment planning, the entries reflected a roughly 50-50 split between in-house and outsourced service. This fits with the general trend we’re seeing of advice firms increasingly drawing on DFMs to take care of the technical side of investment management, freeing them to concentrate on building and enhancing their client relationships.

Raising the bar of professionalism

It was inspiring to see that the biggest growth category for award submissions in all regions since 2021 was ‘Excellence in Professional Development’. It’s great that so many firms around the world have mechanisms in place to improve recruitment and retention, including investing in supporting colleagues through their professional training and longer-term development.

This is essential in my opinion. Raising the bar of professionalism with advisers and planners is bound to benefit not only clients but the firms themselves and, over time, the whole sector. We certainly need to attract more prospective advisers and planners into the industry if more people with investible assets are to benefit from accessing quality advice.

Another element core to delivering the best experience and outcomes to clients is understanding them and their reality. Diversity and inclusion in businesses can play a big part in this.

Understanding breeds engagement which in turn breeds trust with clients from all sorts of backgrounds, but there were very few entrants in any region – and none at all in some – for ‘Excellence in Diversity’.

It’s a relatively new award and one which has different meaning in different regions. Hopefully next year more firms will be happy to showcase how they’ve captured the spirit of diversity in their business and the benefits.

Continuing to progress good outcomes

One interesting trend across UK firms was not specifically calling out Consumer Duty either as a driver of change or a challenge.

However, with plenty of focus on delivering the best service to clients, it would appear many UK-based advice businesses are on track to comply with the duty when it’s implemented later this year.

While this is a localised regulatory initiative, good client outcomes matter globally of course. We all have a part to play in continually putting end-clients’ interests first, so they have the best chance of achieving the future financial security they seek.

We’re living through a challenging time, with much to test and occupy advice firms. It’s incredibly encouraging to see the increasing priority placed on best practice in among all that, with a rising tide of professional standards. Well done to all firms striving to be the best… for their clients, their team and their profession.

This article was written for International Adviser by Mark Sanderson, managing director of Morningstar Wealth.

These awards seek to recognise the hard work that goes into running a successful advice firm that puts the wellbeing of its clients and staff at the heart of everything it does.

With the winners revealed in all five regions, I sat down with Morningstar Wealth managing director Mark Sanderson to understand the importance of best practice, an awards category crying out for more entries, and the challenges that firms will face as we venture into 2023.

Now in its sixth year, we are delighted to introduce Praemium as our partner for the 2021 awards.

As with previous years, our awards are spread across UK, Europe, South Africa, Middle East and East Asia.

The deadline for entries for all regions is 30 September.

Full details can be found here.

In the video above, I speak with Mark Sanderson, managing director UK & International, to understand how Praemium views best practice, what the industry needs to do better when it comes to diversity and the one key change he believes would improve the financial advice sector.