There is a school of thought which says this year is going to be a very tough one for independent fi...
There is a school of thought which says this year is going to be a very tough one for independent financial advisers. This is especially the case in the UK, where, by mid-2005 the FSA (the regulator) should have in force:
• Depolarisation, which still seems something of an unknown quantity in terms of how the market will react (as opposed to what the surveys say will happen).
• Commission menus, which are strictly part of depolarisation, but will have their own consequences as the fault lines between 'maximum commission' and the FSA's outdated 'market average' appear.
• New disclosure rules for collective funds, which will see the Key Features document detailing up to 10 years' discrete past performance alongside both the total expense ratio (TER) and the reduction in yield (RIY).
• The Basic Advice Regime, which in truth is a non-advised sales structure many observers feel has been foisted onto a reluctant FSA by the Treasury.
In the product area, there will also be a number of developments including:
• More Ucits III funds, as providers start to understand and exploit the opportunities for more diverse collective funds.
• More international funds imported into the UK due to the Finance Act 2004's relaxation of the distributor fund rules.
• Stakeholder products, which are all that the 'basic adviser' will be able to offer.
• More specialist offshore funds, such as property funds, which on tax grounds are still better suited to a non-UK domicile.
• Possible changes to UK fund taxation, which could prompt rethinks on the appropriate structure (and location) of some types of fund.
If it all seems challenging, then put yourself in the shoes of your clients. Even if they have come to grips with today's investment environment, how much will they understand of the myriad changes taking place?
A recent survey we undertook at New Star is very telling in this regard. We asked potential investors who said that they were not intending to invest over the next six months 'what would need to be done to encourage you to invest?' The leading reply - after the inevitable 'don't knows' - was not a plea for greater tax incentives, lower charges or less complex products, but simply 'good investment advice'.
If I had to point to just one reason why I think the outlook for IFAs is rosy, it would be that answer. The faster the investment world changes, the more it is your advice that will be key in clients' investment decisions.
Have another look at my two 2005 lists above; each item there is an opportunity to provide advice and explanation, to offer the informed guidance which potential investors say they need. Of course, it means that you must keep pace with all the market developments, but that is part of your job and one reason why your advice is worth paying for.
Slow progress in improving diversity
Share purchase deal with assets of £28m
Came into effect in January
Three examples of compensation rule issues
Buying in baskets