Independent financial advisers are a dying breed. Without urgent action, this profession could be extinct within 20 years.
Their number is decreasing. The work seems either unattractive to young people or hard to break into, with just 261 advisers under the age of 25.
Many IFAs are over 50 and succession planning is often nonexistent. Yet this sector is a beacon in world of scammers and fraudsters.
Since the 2015 pensions freedoms, advice services are needed more than ever. The median household net worth in Britain is £302,500, yet just a tiny minority of people take regulated advice.
IFAs know the value of the services they give their clients, but sadly few spread the gospel to the outside world. They do not need to try. Most have more than enough clients and are turning people away as many begin their retirement journey. The IFA sector is imploding.
But who is there to inject new Iife into a valued industry? The brand messaging is poor – ask your friends and family, do they know the difference between an independent financial adviser or firms that offers restricted advice like Hargreaves Lansdown or St James’ Place or indeed appointed representatives?
I have yet to meet one young university graduate whose ambition is to be an IFA, although this can be an intensely rewarding career, with IFAs not only sorting out money issues but sometimes being unheralded life coaches.
Martin Lewis, the personal finance guru on ITV, has a deservedly terrific reputation as a consumer champion with lots of new bloggers trying to emulate him. But this should and could be your role, not that of a TV pundit.
If IFAs were held in high regard by the general public as consumer champions, rather than simply there to help max out on the latest higher rate tax loophole, the sector would attract new blood and fresh thinking that could revolutionise its long-term prospects.
Some IFAs do loss-leading pro bono work but they do not trumpet this side of their lives. Many are too busy servicing their existing clients to take on more so pro bono is not often done.
That impecunious 25-year-old on £20,000 a year thinking about his or her first pension plan or saving for a mortgage could become tomorrow’s multi-million pound entrepreneur. Sadly, the very people who can gain the most from an IFA can least afford it, with standard pension planning costing around £200 an hour.
The industry is all too fragmented with a confusing set of acronyms and poor branding. Think of the barrister’s wig and gown – old fashioned it might be but it sends a powerful message that they are our advocates in court.
Think of an estate agent – they sell or let your house but what exactly do IFAs do for our money? While most of their clients laud their work, the general public either distrust IFAs or are simply ignorant of what an IFA can do for them.
Years ago in the 1990s, in the Observer national newspaper, I warned about spivs standing outside factory gates enticing people out of good company pensions. The recent British Steel transfer disaster is history repeating itself.
Some of their employees were gulled by scammers but other employees used IFAs who sometimes failed to reach minimum professorial standards. They cost the individual and the industry a huge amount, not only in money and regulatory fees but more importantly the loss of trust.
Once trust is lost, whether in employment, marriage or in financial transactions, that is gone for ever – or at least extremely hard to claw back. Look at the Herculean task chancellor Kwasi Kwarteng will have in re-establishing the UK’s long held reputation for financial stability.
But trust is not enough. The industry is so fragmented, with limited information available on comparative performance and charges, and the standard directories are not as helpful as they might be – but change is in the air.
IFAs will face a new consumer duty with a requirement to implement a plan on how to comply with the rules by October 31.
Perhaps the Financial Conduct Authority’s ambitions in these areas – which include ending rip-off fees, barriers to switching and a host of other well-intentioned measures – could be a catalyst to cajole the profession to stop using clients as cash cows and instead take up the more rewarding mantle, both ethically and financially, of consumer champions.
It is up to IFAs to grasp the nettle or it could turn out be just one more costly bureaucratic box-ticking exercise with no discernible benefit. It is your choice.
Stephanie Hawthorne is a freelance journalist
