IFAs dressed up as wealth managers must watch out
Many IFA firms have been attracted to the high net-worth sector by its durability and robustness.
Many savvy financial advisers have rebranded as wealth managers in recent years, although some may be reconsidering the move in light of recent regulatory pressure. They should stick to their guns.
The future of the advisory sector is in offering high-quality, professional one-to-one advice to consumers who appreciate it and, more importantly, can pay for it. Future demand will be for wealth management-style services for better-off clients as the mass market drifts towards restricted advice and online services.
It is not surprising, though, that the FSA has been taking a closer look at the burgeoning wealth manager sector, many of them, of course, rebadged IFA firms.
As the term ‘IFA’ has become somewhat devalued in the past few years – a shame in my view – we have seen many firms shift their styles to become wealth managers.
Of course there is nothing inherently wrong in being a wealth manager. In many ways it is a clearer term than IFA, a term which was perhaps never as widely understood by the public as many in the industry assumed.
Rebadging as a wealth manager also enables advisory firms to place their feet firmly in the elusive and sought-after ‘affluent client camp’.
With the retail distribution review on the way and fee charging moving up the agenda, adviser firms were perhaps also wise to understand that clients with a few quid in the bank were more likely to be able and willing to pay fees than those for whom a £20 a month life policy was a stretch.
Which brings us to the latest concerns from the FSA. Last year it wrote a ‘Dear CEO’ letter to a number of wealth management firms after discovering “widespread failings”. It has now revealed it will be taking its inquiries further and interviewing key individuals. Its main concerns seem to centre on record-keeping and the suitability of advice.
All of this will send a chill down the spine of many smaller firms which have rebranded as wealth managers.
Some advisers believe smaller firms of advisers operating as wealth managers have little to fear as the review is mainly targeted at private banks, family offices and larger firms. I am not so sure.
Regardless of the size of firm, the clients are the most important element and it is perfectly possible for a millionaire investor to choose a small firm over a large private bank. The FSA is there to protect consumers whether they deal with big firms or small ones.
A key question here is what is ‘wealth management’? To the best of my know-ledge there are no legal definitions. Someone with £50,000 in the bank may consider themselves wealthy, while others might consider this just a basic ‘rainy day’ fund. The definition is elastic.
In the high net-worth market the standard definition is at least £500,000 in investable assets. It is worth noting here that the so-called high net-worth sector in the UK is substantial although not mass market.
More from Kevin O Donnell
- Time to come clean on state pension shortcomings
- Pot luck pension reforms
- Finding the X factor in new clients
- Benefits of advice go beyond client returns