The New Dawn Fades (for IFAs)

For twenty five years we have been sold the need for independent financial advice. I was an IFA once and never for a moment reckoned I was offering independent advice – one product looked pretty much like another and if product A paid me 30% more than product B then product A made it onto my recommended list.

After a few years of commission selling, I was sick of it and moved on.

Amazingly, it’s taken the FSA another 20 years to make this connection.

Of course there’s a type of advice that is independent, it’s advice that’s independent of the product recommended.

Here’s some interesting stuff from someone who I’ve met a couple of times and is precisely the kind of person I’d take advice from

 

Independent advice will be ‘killed-off’ by the retail distribution review (RDR) and shifting client needs according to Mattioli Woods which plans to offer restricted ‘structural advice’ and provide its own products.

Bob Woods  group chairman of AIM-listed pensions specialist IFAMattioli Woods, said while RDR would make independent advice ‘prohibitively expensive, the biggest driver of change would come from clients who would want ‘strategic’ financial planning but not demand whole of market product research.

‘Rather than the RDR having the biggest effect, it is changing client needs that will kill off the IFA model which will be replaced by 21st century financial services business like ours,’ he said.

‘There is no point talking about investment products before the structural stuff has been agreed. The idea of finding the best product and execution is putting the cart before the horse.

‘If they [clients] are getting the best structural advice they would expect that same organisation to give them the most suitable products. No one questions whether private banks are independent or not. And they have very sticky client relationships.’

Woods said his firm had become a provider and adviser, providing its own Sipps and structured products as well as a recently launched discretionary portfolio management service.

He said the strategic advice model would also apply to corporate advice, with Mattioli Woods developing a ‘corporate counselling’ service to provide high level advice to company directors and employees as well as advising the business on which pension scheme to choose.

There’s something quite quaint about that final paragraph! Believe it or not, Company Directors and employees are quite used to being offered and to taking advice on pensions. For many of them, their pension scheme has greater control on the strategic decisions the company makes, than its Directors. If Bob sees a new dawn, then let me show him high noon!

It was reported last week that 3000 advisory firms would close with the introduction of the RDR. For them the New Dawn is Fading fast; a revolution in financial services, fuelled by commissions has been discredited.

We are now in the world of vertical integration– the world that pre-dated the rise of the IFA where the product is an adjunct to strategic advice.

Believe it or not, the new dawn of the 21st Century Advisers, Bob describes, was the world that Hambro and Abbey life sold to their salesmen. The vertically integrated model of Mattioli Woods or Hargreaves Lansdowne looks suspiciously  like what I thought I was buying into when I started out in 1984.

There is no silver bullet – the needs of clients have not changed – there is nothing that the financial services can offer us today that it did not offer yesterday.

The only thing that differentiates the strong sustainable firms like Mattioli Woods and Hargreaves Lansdowne from the morass of failed advisory firms from Norton Warburg to Honister is integrity. Some firms have it and some don’t.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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