IFA predicts ‘mass exodus’ in April/May 2013
Insurance companies will also be hit by reduction in new business, IFA predicts.
The financial services market will experience a mass exodus of advisers in April/May next year as they struggle to make ends meet in the post-Retail Distribution Review world when the payment structure switches from commission to fees, an IFA has predicted.
In an interview with FTAdviser, Julian Pruggmayer, IFA for West Midlands-based Financial Risk Management, believes the switch from commission to fees will cause detrimental problems for smaller IFAs and those lacking high net worth clients.
He said: “Advisers are used to writing a piece of business on the first of the month, where the commission would come through in the third or fourth week of the month. Post-RDR they will have to say to the client that they will be charging a fee or that they are taking the fee out of the policy and advises will have to wait six to nine months to get that fee. How is an IFA who owns a practice with five or six advisers supposed to fund his advisers’ salaries during this period?
“Effectively what I am saying is from 1 January, most financial advisers will see their income stop for seven to nine months. I haven’t got a clue how they will survive, particularly for those that are in town centres.”
Mr Pruggmayer also slammed the regulator for not addressing this issue.
He said: “It [the FSA] has spoken to those people who tell it what it wants to hear or people who are so removed from the sharp end that they haven’t really got a clue what’s going on.”
Mr Pruggmayer has been in the industry for 30 years and says that in the last 15 years, the industry has lost between 60,000 to 80,000 advisers, particularly those who previously sold life insurance by knocking on people’s doors.
He said: “And the same thing to a lesser degree will happen over the next two or thee years because there will be such a reduction in new business coming in and I think everybody agrees with that.
“Then suddenly the insurance companies will find that they are really top heavy with administration and they will have to start making people redundant. It will be a knock-on effect.”