IFA consolidation will be an inevitable by-product of regulatory pressures and will lead to a shift in the market, according to Cofunds' chief executive Charles Eppinger.
However, Eppinger says the impact on the industry will not be as large as expected.
A number of analysts have predicted a decline in the number of IFAs as firms merge or join bank multi-ties as a result of a move towards principles-based regulation and falling commissions.
A report for the FSA of financial intermediary firms by KPMG last May quoted one nameless IFA who declared: “Principle-based regulation may be the death of the smaller IFA who does not want to carry the risk nor can afford to insure against it.”
But Eppinger describes the adviser industry in the UK as “solid” and says any shift in the market will prove minimal in the long term.
“People have been talking about IFA consolidation for years,” he says.
“I think the FSA would like to put stringent capital requirements on IFAs, which there is not today. The conventional wisdom is that 80% of IFAs will be fine, but the bottom 20% will either merge with eachother or with bigger firms, or they will go out of business.
“The combination of stringent capital requirements and possible changes to the commission structures could see firms going out of business and the question is: who is going to pick that up?
“It could be picked up by some mergers or it could go to the banks. The banks have got the branches and customers all in place.
“There will be a period of adjustment. In the short term, if there were big changes it could reduce the number of advisers, but over time I think it will just lead to a slight adjustment."
Eppinger says IFA distribution in the UK is "alive and well" and says most advisers welcome the FSA's attempt to improve the industry.
“The good IFAs welcome the standards," he says. "They’re saying: we’re not afraid of moving to fee-based.
“If you look at the way distribution is carried out in Europe, some people think that this is the way the UK is going. But there are a lot of terrific IFAs out there and it’s a solid industry.
“We’re not talking about a sea-change here. It has worked here for years.”
Eppinger also confirmed he will be joining representatives from Skandia, Fidelity and Standard Life to meet FSA officials tomorrow.
He said the regulator wants to know their views on the industry and current regulations.
Eppinger says the quartet will be lobbying for a full disclosure of all fees and charges in transactions, something the FSA already supports.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Scott Sinclair on 020 7034 2636 or email [email protected]
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