Your IndustrySep 17 2014

IFA criticises shift to high net worth clients

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Financial advisory firms who have been focusing on high net worth individuals to maintain profits since the Retail Distribution Review have been branded “short sighted” by Craig Palfrey, partner at Penguin Wealth.

Speaking to FTAdviser, Mr Palfrey expressed amazement that so few peers had differentiated their proposition by splitting up the wealth and ‘man on the street’ models.

The firm split its business into two, with Penguin Wealth serving wealth management clients, while Get Financial Advice has been developed as an, internet-based model backed by telephone and desk-based advisers providing a simpler solution at a lower cost.

“Most of our peer group are moving to a narrower client range, fewer clients and are taking the IFA model into the realms of being for the privileged few.

“Our view is this is short sighted, we still want to provide the best service possible for our wealthier clients, but also to extend the value of our expertise, facilities and proposition to as many people as possible.

“It seems obvious to us that to do this you build different service offerings to different parts of the market and that is what we are doing.”

Mr Palfrey noted a clear trend of IFAs becoming wealth managers due to fee pressure and higher qualification standards since RDR.

“So both the supply of independent advice is dwindling and the demand is falling, because the wealthier people can afford it (or that is the perception) and also have the greater need, but the less wealthy are less likely to pay fees and will gravitate to the internet and money websites, direct dealing etc.”

He believes there has been a shift in mass market perception, to people getting ‘free’ advice and then paying for it through the product channel.

“People who use online services are of course paying for it, but they consider they are not paying a fee and that is the important point, people will seek out simple products through online channels and will not pay a fee for the advice.”

With this in mind, Mr Palfrey suggested that the forthcoming ‘guidance guarantee’ for retirees considering their options from next April, may produce as many problems as solutions, ultimately helping the financial advice model.

“Very few people seem to realise how major auto-enrolment will be and what an unbelievable opportunity this is for IFAs to build new service offerings to companies and their employees, attracting new clients who would otherwise not use them.

“The movement in this market has been slow because it has only been the bigger employers caught in the net so far; however give it a year or two when nearly all employers will be affected and responsible for delivering pensions to their workers and the market will go berserk.

“However most IFAs, focusing on their narrow wealth management service, will not be able to deal with this.”