Short of a plague of locusts (which at this juncture would not come as a real surprise) there is not much more that could hit the financial services industry this summer.
First there was the RDR at the end of June which heralds the biggest shake up of the retail industry since the Financial Services and Markets Act in 2000. Then in July came the rain in biblical proportions which destroyed homes, put businesses out of action and had a knock-on effect on insurance premiums. There was a ray a light when the new Harry Potter book was launched but for those of you who have hatred in your hearts for adults reading a children’s book (especially openly on public transport) the summer has been a write-off.
However, after weeks of doom and gloom, the fight-back appears to have started and these fighters are to be applauded for trying to surmount some pretty steep odds.
Only this week Fidelity released figures from a new survey of more than 500 firms which found half are in danger of being squeezed out of the advice market under RDR proposals. The research found 44% would become General Financial Planners if the FSA presses ahead with a three tier model for retail distribution.
However, Fidelity warns general advisers could see their business seep away to fee based firms (favoured by high net worth clients) and banks.
Peter Hicks, head of IFA business at Fidelity comments: “The risk for general financial planners is that they may simply be squeezed out of the market. Fee-based firms would be the natural selection of high-net-worth investors and the banks may well concentrate on the mass market. General practitioners could find themselves between a rock and a hard place.”
Research from JPMorgan, which interviewed over 200 firms, was equally worrying for advisers as it found the number and size of IFA firms could change significantly over the next five to ten years. More than 40% of the firms surveyed believe small firms will go out of business as scale becomes more important while 36% believe costs will increase for smaller firms. In addition, 70% of firms with revenues of less than £1m a year ( accounting for 95% of the IFA market) are seeking investment, to sell their businesses or to join a larger firm.
So what should advisers in the middle of the market do when faced with this appalling prognosis? Heed the warnings and seriously consider selling up?
The answer is a resounding no from many fighters in the industry including Mazars Financial Planning’s Paul Willans who argues the solution is to start make gradual changes to businesses now.
He tells IFAonline: “For all the fears raised by RDR, there is the real opportunity to create a true financial planning profession and all firms and advisers can participate in this.
“Over the last few years, Mazars Financial Planning has anticipated the writing on the wall and has made several radical changes to our business model, including; a move away from commission to a true pure fees model, the development of leveraged planner and financial assistant (paraplanner) teams across all our regional offices, the creation of an integral, fully independent platform proposition, development of in-house investment research and management resources and the coaching/training of all our staff towards certified and chartered status.
“We have also started to grow our own planners, by recruiting graduate trainees on formal, long term training contracts, in just the same way that Mazars develops its trainee accountants.”
Obviously, his solutions may not suit all firms but the idea of recruiting younger people into the firm and ensuring they take the extra qualifications needed could help IFAs nearing retirement who are reluctant to take more exams themselves.
However, the biggest weapon for IFAs fighting to survive the new regime is the fact they have providers on their side. Whereas in the past, IFAs were fighting against providers on issues such as with-profits, this time providers are desperate to help save a valuable distribution channel.
Providers can be particularly useful in improving knowledge and professionalism in the industry according to JPMAM which has got in there early with the launch of a training academy for IFAs. JPMAM believes the asset management industry can support advisory firms in the following five key areas: flexible and transparent pricing, education and training, client education, collaborative product development and marketing. Support is also coming through from IFA organisations especially AIFA which has just issued the first in a series of papers exploring the key areas of the RDR.
IFAs should try and make use of all the material and backing available in terms of improving their knowledge levels as well as reviewing their own business models. The headline grabbing statistics paint a picture of what could happen if no IFA firms make changes not what the situation could be if adjustments are made. What is also forgotten is that the RDR is not yet a done deal. The FSA is holding a series of discussion forums to gage feedback from smaller firms on the RDR so IFAs’ voices can still be heard and alterations made. For all IFAs doing nothing is not an option if they want to survive but that does not mean they have to destroy everything they have worked so hard to build up.
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