Push on and prosper

While early indications are that quite a few IFAs have fled to the safer harbour of restricted status – temporarily or otherwise – most appear ready to plug on, perhaps opting to become fully-fledged financial planners or wealth managers but certainly all with a new outlook on the client-adviser relationship.

The old world is over and probably never to return. Providers have been barred from using the carrot of commission to help sell products and there cannot be many advisers who do not realise that professionalism and higher standards are here to stay.

It is fair to say that the IFA sector that remains has been through the mill over the past few years and yet despite all this turmoil I remain positive about the intermediary sector – so why? Before I give my reasons it is worth looking at the numbers. Ernst & Young forecast towards last year that up to 30 per cent of advisers would call it a day with the arrival of the RDR while the FSA put the reduction as low as 5 per cent. A 15 per cent reduction was a popular guess and may be closer to the reality based on recent evidence.

The big questions are how many advisers have hung up their coats or moved into restricted or other sectors, reinventing themselves. It may take a month or two before we have accurate figures rather than predictions but the regulator still expects 30,000 advisers to be left and I am bullish that this ‘hardcore’ could eventually start to grow, now that the cloud of the RDR has finally moved on.

There are some good reasons for this. For one, the adviser sector is now inherently a much more professional one and this alone is likely at a stroke to attract more graduates and better quality individuals as recruits. In addition, the new clients prompted to use a financial adviser will likely be better off – if only to afford the fees – and will appreciate the more holistic approach to their finances which is more conversational and less ‘salesy’. Better quality advisers and better quality clients sounds like a good combination to me.

The reputation of any sector is also vitally important to encourage consumer trust and, let us be realistic, the reputation of the financial services has been routinely sullied until now. The RDR is a chance to turn over a new leaf.

The reputation of any sector is also vitally important to encourage consumer trust and, let us be realistic, the reputation of the financial services has been routinely sullied until now.

That is not to say there will not be problems. IFA network Tenet revealed last week that 10 per cent of its investment advisers were de-authorised at the end of 2012. The company said that another 15 to 20 per cent of network members may have also stopped providing investment advice, either through choice or not achieving the required level four qualification.

In addition, a recent survey for VouchedFor.co.uk, a website offering users the chance to rate their financial adviser, found that eight out of the 10 biggest advice firms are now opting to use the restricted model post the Retail Distribution Review.

According to the research, of the 10 largest companies offering financial advice – as defined by Financial Adviser’s annual Top 100 IFAs list – only Hargreaves Lansdown and AWD Chase de Vere will continue as independent investment advisers. Firms migrating from the IFA to restricted model include Towry, Lighthouse, Brewin Dolphin, Investec Wealth and Investment, Charles Stanley and Close Brothers.

This will come as a shock to many who saw these firms as committed to IFA advice but it underlines the fact that offering financial advice has to be a commercial proposition. Without profits there can be no financial advice and many firms have clearly taken the view that relying solely on client fee-charging is too risky at this time.

The FSA will be taking stock now at the impact of the RDR and may just be a tad concerned. Was it really the intention to restrict independent advice to only consumers who can afford to pay £150 an hour for advice? Hardly, the best result for consumers.

Of course, restricted advice is better than no advice at all (in theory…) but truly independent, impartial advice is best of all and it appears that consumers may find this more difficult to obtain.

Nevertheless while the financial adviser sector has seen some of the biggest upheaval since the mid-1980s those that remain will almost certainly have got their act together by now – or got out. It may be a brave new world post-RDR but it is also one in which the brave and bold adviser will surely prosper if they grasp the opportunities.

Kevin O’Donnell is a financial writer and journalist.

You said:

Hyman Wolanski MD Sippchoice in response to Kevin O’Donnell’s column on Sipps

The minimum capital that Sipp operators are currently required to hold is much higher than the figures set out in his article – typically, they hold capital equivalent to six or 13 weeks’ expenditure. These are going to be massively increased under the FSA’s proposals, up to 20 times in some cases. While this is being done in the name of consumer protection, and it is clearly better to have a stronger Sipp operator than a weaker one, this will have major implications for the Sipp marketplace and will result in a number of Sipp operators exiting the market – thereby reducing customer choice – and higher Sipp charges to cover the cost of the additional capital required to be held by the Sipp operator. It is, without doubt, possible to make less drastic changes that will improve consumer protection but with far fewer adverse consequences and, hopefully, this will be the outcome of the FSA’s consultation on this matter.