Investment Platform

What are advisors thinking?

NMG Consulting recently completed their annual survey amongst South African financial advisors on a range of issues relevant to their businesses. Here, we share some of the interesting results.

Mar 2, 2021

9 minutes

Jaco van Tonder
NMG Consulting recently completed their annual survey amongst South African financial advisors on a range of issues relevant to their businesses. Here, we share some of the interesting results.
NMG Consulting, a global specialist consultant, uses proprietary insights to help businesses like ours understand the landscape better and so serve you more diligently. As part of their ongoing work they do an annual survey amongst South African financial advisors on a range of issues relevant to their businesses.

The survey comprises of 150 interviews with independent financial advisors, as well as additional meetings with discretionary fund managers and other market participants, and the results are analysed and compared with the results from similar surveys done in other jurisdictions.

Their most recent annual survey threw up some interesting results, particularly since we had the extraordinary impact of COVID-19 to deal with.

Below we summarise some of our key take-aways from their recent advisor survey. We will also release further articles on some of the specific topics, and how they drive many of the strategic decisions for our advisor platform and funds businesses.

1. Key concerns for South African IFA firms.

Every year NMG summarises advisors’ key concerns – a summary of the areas that elicited the liveliest responses and engagement and were clearly top of mind. Compared to 2019, the top 2020 advisor concerns were the following:

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Although some 2020 themes were new, none of these themes are a major surprise, as they occupied the mindsets of advisors and investors during the course of the year.

Regulatory pressure remains a concern locally, and in that regard South African advisors join the global outcry from financial advisors expressing concern about the ever-growing costs of compliance and the impact of this on advice affordability.

The new items this year emanated from the macro environment driven by COVID-19 and big concern from clients about the state of SA politics and the SA economy.

2. Review of SA advisor themes

Platform considerations

NMG spends a fair amount of time surveying the key areas important to an IFA when choosing a platform.

In the case of the 2020 survey, three factors stood out as the top general considerations when IFAs evaluate platform value propositions:

  • Usage of technology to automate and simplify the advisor’s interface with the platform;
  • Quality of the frontline relationship staff with whom the advisor deals;
  • Quality of the basic administration service delivered.

Other factors like product/brand/price always get a mention – but the response is not as unanimous as it is on these three points above.

In addition to general considerations, NMG also explores factors that would differentiate a platform most strongly – what is an advisor most likely to notice or look for? In this case the list included:

  • Technology/straight-through processing;
  • Overall value-add and the ability to interact with platform senior management;
  • Speed and accountability around administration.

Finally, NMG explored the key triggers that would cause an advisor to switch platform allegiance, i.e. which areas should a platform not get wrong. This list included:

  • Lack of leading technology that integrates with processes in an advisor’s office;
  • Repeated poor service experiences coupled with poor corrective action responses;
  • Uncompetitive pricing (listed as the most likely reason to change platforms).
 
Making it easier for existing clients to continue doing business was a key priority in designing our new web interface, and made us more COVID-19-ready.
- Daryll Welsh - Head of Product Development, Investment Platform

Other interesting take-aways related to COVID-19

COVID-19, and the resulting lockdown, had a significant impact on how advisors view their relationships not only with providers, but also with clients.

One interesting anecdote from the survey was that many advisors reported COVID-19 deepened advisor-client relationships and that clients now show a higher appreciation of advice.

A second interesting takeaway from the 2020 survey relates to how advisors prospect for new business. The impact of social distancing and lockdown made it more difficult to prospect and convert brand-new clients. Advisors suddenly found existing clients looking to reorganize their financial affairs or being retrenched and having to deal with the pension fund and cashflow implications. A lot of the interaction and new business in 2020 therefore came from existing clients, either topping up or consolidating.

Advisor source of new assets
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Thirdly many clients started engaging advisors about the finances of their wider family group, and not just one member of the family. Discussions about funding the next generation, as well as new business from family referrals, increased significantly. This in turn fueled the conversation about family advice propositions from investment platforms.

Increasing focus on family advice

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Take-aways for Ninety One

A platform’s ongoing investment in their technology infrastructure and interface with advisor offices has become a key strategy indicator that attracts new advisor firms and strengthens existing advisor relationships. No doubt COVID-19 played a major role to highlight the importance of technology to advisor firms, as can be seen in the responses to one of the other platform related questions in the survey:

Advisor expectations from LISPs post COVID-19
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On the other hand, it is also clear that responsive and accurate administration service levels remain a critical test of any advisor/platform relationship. The low-hanging fruit is where technology can improve service through automation. But as a business we take on board the message that, where manual transactions remain, the administration needs to be efficient and accurate.

And lastly, on the topic of the growing importance of family advice – we agree that this has become a key area of differentiation, and in this regard we have prioritized and started our design process for automated family office functionality.

3. Trends relating to investment strategy

NMG also dedicates a significant proportion of their survey probing for trends, developments and opportunities around the investment processes of advisor firms.

This year three trends stood out as noteworthy, and we summarise them below:

  • Offshore now the key conversation for advisor portfolios;
  • Developments in advisor DFM relationships;
  • Trends in usage of passives and boutiques.

Offshore growing

For both existing and new clients, given the increased concerns voiced around South Africa’s political situation, the survey observed a structural rise in the investment allocation to offshore. Discussions about offshore investment strategy and finding ways to increase clients’ overall offshore exposures in products, subject to exchange control limits, dominated advisor conversations.

IFAs increasing offshore allocation

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We saw the impact of this in the 2020 fund manager flows, where fund managers with a strong reputation and globally integrated offshore approach (including Ninety One) benefited significantly, and will continue to benefit in the foreseeable future.

DFM relationships critical

As competition has sharply increased in the discretionary fund manager (“DFM”) market over the past couple of years, all the advisor segments NMG surveyed once again reported that they expect an increased DFM usage in their businesses.

% expecting increase in DFM usage

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The reasons cited by advisors for this ongoing trend include the following:

  • Efficiency in the advisor practice;
  • Better investment governance;
  • Client suitability.

None of these reasons are due to change soon, making the interface between an advisor firm’s DFM and their platform of choice a key operational relationship for the advisor.

However, the increased usage of DFMs does trigger some shifts in investment strategy in IFA firms. For example, as DFM/advisor relationship build scale, fund managers have seen some drift away from active/multi-asset mandates/large managers towards passive/specialist mandate/boutique managers for advisor firms advised by DFMs.

There is a lot more related information which we will be unpacking in another article in the near future.

Take-aways for Ninety One

These trends, whilst perhaps not new or unexpected, play a key role in our business planning.

We are proud of the global business that we have built. As an independent, listed fund manager we are perfectly positioned to grow our global capacity and skill set, which enables us to really deliver globally competitive investment propositions for our South African advisor and investor base.

Both our investment platform and our funds management businesses partner extensively with DFMs, and will continue to do so, for the benefit of our advisor clients. Our platform business continually expands our technology interfaces for DFMs to further unlock efficiencies in the advisor/DFM relationship.

At the same time our funds management business focuses on maintaining competitive active investment propositions in both multi-asset and specialist mandates to ensure we compete well, irrespective of the investment strategy an advisor and DFM decide to pursue.

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Authored by

Jaco van Tonder
Director of Advisory Services

Important information

All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security.

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