Stephen Kavanagh: A declaration for independence

Clients must be placed at the heart of every advice business

clock • 5 min read

Is it in the best interests of clients when independent adviser firms sell out to restricted consolidators? Stephen Kavanagh outlines his concerns

It is very interesting to see consolidator firms such as Standard Life 1825 and Succession buying small IFA firms. I cannot, however, help but be concerned about adviser firms moving away from independence and adopting a restricted model and have to ask myself whether this is the best interests of their clients.

We have already seen most of the larger advice firms, such as St James's Place, Towry and Hargreaves Lansdown, firmly nailing their colours to the restricted mast, allowing them to sell their own products, funds or platforms and thereby earn bigger margins than they would by recommending third-party products.

I am not claiming all restricted advice is bad - because it isn't. It cannot, however, be good news for consumers to be pushed into the products of a restricted adviser if those products have high charges, are inflexible or are generally just inferior to the leading third-party products on the market. What I really dislike is adviser firms that earn revenue from more than just giving advice and yet effectively hide the true extent of their charges from their clients.

As an example, I was shocked to read a recent valuation statement from a prospective client who was using a particular restricted adviser. The standard charge for investing in their investment funds is 2% a year - not including any underlying fund charges. They do, however, provide a tiered discount on charges for larger portfolios so the investment charge for this particular client came in at about 1.8% a year - again, not including underlying fund charges.

Yet while, on the client's valuation statement, the 0.2% discount was shown clearly in pounds and pence as a rebate, there was no clarity over the 2% (or 1.8%) charge. The 2% a year charge was only mentioned at the very back of the statement with no monetary values quoted. Somebody reading this valuation could easily think they were getting more back as a rebate than they were actually paying - effectively hiding the real extent of the charges.

While I struggle to see the larger advice firms re-adopting an independent model, I do think most smaller advice firms share my belief in the importance and value of independence. They see themselves as providing an essential financial planning service to help their clients achieve their goals, without any restriction or bias, rather than simply selling them products. Yet, one by one, we are seeing smaller firms moving from independent to restricted.

I do understand the regulatory pressures and costs of remaining independent and this could mean that many adviser firms are being forced to consider their viability in the future. I am sure the cheques being waved around by the restricted consolidators are also pretty tempting - especially if the IFA business owners are planning to retire imminently or in the coming years.

I would, however, seriously question whether moving down the restricted channel is the right choice for smaller advisory firms, many of whom have been staunchly independent in the past as they have focused on client centricity and acting in their clients' best interests. I would question even more whether this move ensures their clients are placed at the heart of their business.

For clients, such a move could see them being shovelled into a new investment service or range of products or, if they refuse to move, the adviser being unable to give advice on products they may have recommended in the first place.

 

Effective ultimatum

So the client could effectively face an ultimatum from their adviser - move your finances from A to B or I will not be able to give you advice on them any more. How can this possibly be in the client's best interests, especially if their existing products and investments are perfectly suitable? From the adviser's perspective it could mean they are then doing half a job. They might be able to give advice on some of their client's holdings but not on others.

At Chase de Vere we are aiming to grow our business and have been starting to speak with adviser firms with a view to them joining us. We are doing this on the basis we are national firm, with a focus on clients' needs and providing a good quality service, but also that we remain staunchly independent.

I have found that, for some smaller IFA firms, their independence is hugely important, although for others that is not so much the case. I guess this is why some adviser firms are happy to go restricted.

Let me be clear, Chase de Vere could decide to become restricted today. We could launch and start recommending our own products or investment funds, like most of the other larger adviser firms. However, this is not what we want to do. Our staff want us to remain independent, I know our advisers want us to remain independent because they keep telling me and I am absolutely certain it is in the best interests of our clients that we remain independent.

We are looking to grow our business, both organically and by acquisition. However, we will only work alongside those companies that share a similar ethos to us - those that want to focus on what is best for their clients and believe in the value of independence.

I am sure the restricted consolidators will continue to buy more IFA firms. I am also sure that, each time I see this happen I will wonder whether the adviser firm really wanted to go restricted or if they would have been better off - and their clients would have been better off - if they had had a conversation with us.

Perhaps we could have offered them a viable future without having to give up on their independence. Remaining independent could be in the best interest of adviser firms and I am absolutely convinced it is in the best interests of their clients.

Stephen Kavanagh is chief executive of Chase de Vere

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