Baillie Gifford  

New generation of IFAs to shake up market

New generation of IFAs to shake up market

A new generation of independent financial advisers will shake up the advice sector and move the market away from acquisitions and vertical integration, according to Baillie Gifford.

The fund house’s marketing director James Budden told FTAdviser the consolidation gripping the advice market would likely come to an end once a “changing of the guard” had taken place.

He said: “The advisory sector is in a state of flux. Consolidation and vertical integration are rife and investment solutions are driven by price rather than quality. 

“Look further down the line and a new generation of IFAs emerge driven by secular change in UK wealth management needs.

“These new IFAs won’t want to be owned by big consolidated firms, they’ll want to do things their own way.”

Vertical integration, when a firm owns more than one part of the value chain - such as an advice business and investment manager as well as an adviser platform - has become more prominent in recent years. 

But the trend has been accompanied by controversy, particularly on the topics of conflict of interest and price.

Consolidation in general is also a common feature of the current advice market, as scores of advisers approach retirement and regulation makes it more expensive to stay in business.

At the same time, Mr Budden said, changes in the market — such as pension freedoms, auto-enrolment and compulsory advice for pension transfers worth more than £30,000— had created a greater need for advice.

This would make IFAs more popular and the new generation of advisers would be more professional and gravitate towards higher quality investment and business practices, he said.

He said: “At the moment you have big networks who offer a centralised investment proposition based on price and not on quality — so the advisers are just given a solution to give to their client.

“But the new generation will want more than that, and they will want to make their own choices.”

Mr Budden also thought the new cohort would be cost conscious and work to manage margins, limiting the amount of outsourcing they require.

He predicted the younger advisers would not want to give away 25 basis points or more to a third party provider, such as a discretionary fund manager, in order to manage investments.

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