28th September 2010

The IFA is a "doomed species"

The IFA is a doomed species which will suffer at the hands of an increase in demand for free, electronically delivered advice, according to Liberal Democrat Treasury spokesman Lord Newby as reported in Money Marketing last week.

He is quoted as follows: "The traditional model of the IFA looks to me like a doomed species. I think there will be a drift away from old-fashioned financial advice. The regulatory requirements on IFAs are so great, the cost of giving advice is so great and I cannot image why anyone would want to do it. It just looks to me really, really hard."

As one might have expected, this has caused an outcry among the IFA community, here is a selection of views- feel free to add yours in the response box below or via our Linkedin and Twitter groups.

• He is wrong in that it will not be a doomed specie - just a shrinking one! The cost of regulation, and advice, has risen sharply and this together with RDR will ensure that independent financial advice will be the domain of high net worth individuals. The ordinary person in the street will not be able to afford advice (unless hidden by the banks). Instead they will indeed go on-line - those that bother! This will ensure that the rich get richer and the poor get poorer. Good thinking government!
• Another dinosaur who doesn't have a clue what we do. If you want a straight forward term assurance you can go online and get comparisons (albeit not entirely complete). However, if you need generational wealth planning there isn't an online tool in the universe which will be able to deliver it. If you want to look at the performance of funds (albeit that only tells half the story) then you can go online for the answer. On the other hand, if you want to know the various options when drawing benefits from pensions on retirement tax efficiently and the advantages and disadvantages of each option, the online advice is not the answer. Lord Newby's comments are unhelpful and blinkered.
• As with any other species, IFAs are only doomed if they fail to evolve to meet the new realities of the environment in which they exist. The environmental factors include issues such as 'predators' (e.g. new distribution mechanisms that are taking market share at the 'simpler' end), 'climatic' (e.g. RDR and other regulations) and 'food supply' (e.g. the changing nature of consumer demand in the digital information age). Extending the evolutionary metaphor, the species will survive if its DNA adapts to the irresistible changes happening within its environment. This will be manifested by the success of those IFAs who are embracing environmental change (e.g. those who are harnessing the power of the web), accompanied by the gradual extinction of those who, rather than changing, prefer to bleat by the dried up water hole! Perhaps a quote from Charles Darwin might provide food for thought on this subject. "It is not the strongest of the species that survive, nor the most intelligent, but the one that is most responsive to change".
• This is an interesting debate but one of commercial reality. My Uncle rang me up the other day who is very rich and he said I have just seen an adviser from (well lets keep that quiet for the moment). He explained the adviser was going to give him a choice of taking commission or charge fees. My uncle asked the adviser how much do you charge and he said £300 hour but the minimum charge was £3,000. I asked my Uncle do you think he going to spend 10 hours working on your case. My Uncle reply was no way. Even the rich are going to look around and they will all be asking the same questions. Is this adviser really worth that much? Here some more food for thought, I am working with some of the biggest IFAs in the UK who understand this problem as they have worked it out it costs them £514 to have a meeting. There normally 2 meetings to have so that £1,028 to get advice. This means if things are to remain as is even at £200 per hour they would need to bill 6 hours to make a small margin. However there is another way. My Uncle went to a new breed of remote advisers who charged only £500. Now is the time to evolve as the writing has been on the wall for many for a very long time.
• So why do the government of the day sit by and allow the regulator to continue down this path? Is the regulator more powerful than government? Perhaps the real reason is that come the next election Lib Dems will be as much a doomed species as IFAs
• Have to say he is probably right. Looks like long-term survivors will be HNW client firms, and employer/group based firms or maybe niche ones. Professional connections will be crucial.
• Heaven forbid that people would spend a whole HOUR simply wasting their time choosing the best mortgage deal for their needs or making sure their protection plans are arranged properly and written in trust... what a waste of time! (NOT) I cannot believe the faceless internet suits all situations. Clients do still value the face to face contact received when visiting a broker/IFA.I bet Lord Newby doesn't make his investment decisions without some advice.
• When most of the population has no pension, no savings, and no mortgage repayment vehicle in some instances, how on earth will they manage complex affairs with no face-to-face advice? Mr. Newby need to sit in front of a quality IFA and really understand how a good hour with a professional can sort out your finances for life. What a clown!!
• Sadly, I have to say that I tend to agree with Lord Newby. Everybody wants Free Advice. Nobody wants to pay for it. Nobody wants to have commission charges deducted from their money. . . . and the FSA want their many pounds of flesh out of a shrinking supply of profits. . . . I suppose the good thing is that sooner or later there won't be any money to pay the FSA-type people and they will all have to get real jobs!
• Henceforth let 21 September be known as "Newby is a Fool day"! What planet does anybody live on who believes that they can get "free advice" from anybody/ any method? This completely beggars belief and demonstrates how so far these people (members of the ruling Government) are with what an Independent Financial Advisor actually does.
• Thank you Lord Newby for at least recognising what we do is really really hard. Perhaps you could have a word with the FSA and ask them if we could forgo the fact finding and reporting process as this "appalling business" really is a bit of a pain.
• Far better if people take free online advice from, oh lets think who could manage such a task, yes the banks. It'll all be free and everything will be wonderful in the world of financial services. If only everyone had Lord Nimby's vision.
• This is just typical of politicians who do not understand or value the service that IFAs provide. Yes, you can buy "products" electronically, but you will not receive advice - for example, term assurance can be bought online, but will the client know that the cover is sufficient? Will they have considered the use of a Trust? You can write your will online, but would you want to? If you want/need advice in doing so, you go to a solicitor, who will charge for that advice, and financial services are no different. Although IFAs will certainly need to adapt to ensure that they benefit from new technology and find alternative ways to engage with clients, a bigger threat may be that providers who, with less to gain from dealing with IFAs, may seek to re-establish direct sales forces. This is exactly what has happened in the mortgage market recently where lenders have sought to deal with customers direct, restricting IFAs from accessing products. If politicians believe that no one would want to deal with, or even be, an IFA due to the costs and restrictions imposed, perhaps they should look at where these costs and restrictions originated!
• It is about time people got it into their heads that advice is not free. Nothing in life is free. Just because some offer free advice it does not mean the advice has no cost to the consumer. But of course banks hide behind service to disguise the fact that the product has a commission attached to it. Consumers should get used to the idea that good advice should be sought and that it costs.
  

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