Can IFAs create their own profession?

profession

James Walker  has published BWD’s assessment of the prospects for firms offering financial advice as their core product. He paints a picture of rising regulatory costs and sluggish growth prospects preventing IFA practices from employing the young blood to refresh it.

Last month when we released our BWD salary survey we lamented the fact that the population of financial planners is getting ever older, with an average age rising to 46, and anecdotal evidence suggesting the average age is as high as 50.

The question of why a lucrative and professional career is attracting so little young blood prompted us to delve a little deeper, talking to people in the industry about where they thought the problem lay – and what could be done about it.

Two issues quickly reared their head: One was the issue on ongoing liabilities, the other the question of the cost for smaller firms to train new entrants.

Jim Thomson from Thomson Grey Wealth Management said that, speaking to university students, he found that the issue of ongoing liabilities was definitely a factor in putting them off considering the profession, particularly when compared to law and accountancy.

Thomson says he employs a 25 year old who recently completed their own apprenticeship scheme which was something the company devised as a means of eventually handing the business over to a younger generation.

“Apprenticeships are beneficial for young professionals, but they are also a good exit strategy for older financial planners. We know that it’s hard to get a good price if you sell your business because of ongoing liabilities – bringing on younger people is way managing an eventual handover.”

The founder and CEO of Panacea Advisor, Derek Bradley, confirmed that smaller firms find it more difficult to bear the brunt of the costs for training new entrants – especially in a “fee-only world” where employees have to pay their way from the beginning.

“Training really is expensive because of regulatory costs. Firms need a financial incentive to bring on younger people and I believe the Treasury could create a scholarship programme that only small firms could apply for. This could be funded from the fines levied against the banks which go straight to the Treasury at the moment. A substantial amount of money could be made available.”

Chris Hannant, the Director General of the Association for Professional Financial Advisors (APFA) agrees that funding remains an obstacle:

“The industry is fragmented with lots of smaller firms, and the problem is to persuade them to make an investment in a person who could then leave and go somewhere else…It can be done, however, and the challenge for a firm is to make sure that the person has clear career progression and sees the benefit of progressing with your firm.”

The problem, however, is not only financial. Michael Wall, the Managing Director of Beaumont Robinson, helped found the degree in financial planning at the University of Bradford. Despite being designed to bring new entrants into the profession, he admits the course has struggled.

“There is fierce competition with other course that appear similar, and people tend to be drawn towards accountancy without sufficient marketing of what a course, and subsequent career, in financial planning means.”

Although the quality of the course has been recognised as excellent, the quantity of students has dropped off. The plan was to recruit 15-20 students a year onto the course, but this year’s intake was only 8.

Chris Hannant of APFA agrees: “Law and accountancy are much more ‘stodgy’. Our industry allows you to form far more personal relationships with people, and make a difference in their lives. It’s also much more entrepreneurial – it’s a lively sector and attractive to people who want to be their own boss one day.”

Such liveliness can only be ensured, however, by a much better coordinated and funded effort by larger firms and industry networks to initiate the kind of large scale recruitment required to hand the industry over to the next generation.

Having a 17 year old son, considering his options, I’m struck by his attitude to work. He wants to do a job that is lucrative (in the long-term) but seems happy to wait provided he is securing himself a long-term covenant that will meet his needs to start a family, buy a home and retire in some comfort. These are not particularly entrepreneurial drivers.

Talking with him about offering financial advice, he was attracted by a profession that allowed him to be of use, use his educational skills and allowed him to develop long-term relationships with clients. But he pointed out to me that the reality of my career had been very different.

I was an adviser for twelve years, moved companies frequently, did not build long-term relationships and did not provide myself with much in the way of security. There are many fifty year olds like me (and he’s met a few through me).

He summed it up by pointing out that solicitors and accountants have a guaranteed source of work (people need legal agreements and business people need their affairs accounted for), but he saw no obvious a priori need for financial planning. It remains a need that needs to be nurtured among potential customers.

Indeed the long-term relationships that my son could identify , were far more prevalent in the legal and accountancy professions and the job satisfaction he sees from Mums and Dads who have got professional qualifications and worked in LLPs starkly compares with what he called the “random world” of financial advisers.

It is the stability of the career strategy of an accounting , legal or actuarial practice that attracts young people to those professions. I know of virtually no IFA practices that can provide the same formal progress for young people.

The failure to address the needs of young employees is reflected by the failure of many advisory firms to demonstrate durability to clients. Every time I have engaged an IFA, I have found myself having to sign new terms of business on a regular basis as the IFA practice changes hands, changes regulatory permissions and worst, changes personnel.

When IFAs look to build for the future, it must be around certainty and continuity for staff and for customers. What we as customers want is very consistent, our financial needs do not change and – save for tweaking- nor should our financial plans. When the IFA practices can demonstrate consistency of delivery over time, as other professions can, then they will be able to cast off the tag of cottage industry,

But that means a bit more “get rich slow” and a lot more “customer focus”. It will come, because of customer demand, but it will be a slow and painful process and I fear IFA numbers will continue to contract with little new blood until we see advisers construct the kind of professional practices that serve other consultants well.

 

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Can IFAs create their own profession?

  1. George Kirrin says:

    I go back to the Webbs’ definition of a profession as a vocation founded upon specialised educational training, the purpose of which is to supply disinterested objective counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain.

    I come across all too many so-called “professionals” who lack that specialised educational training (particularly the learned ability to view options from at least two different perspectives and to challenge generally accepted thinking) and disinterested objectivity.

    The original professions also took very seriously their duties and responsibilities to bring on the next generation of professionals, even if some of the “apprenticeships” followed a quite old-fashioned master/student format.

    Where (or, rather, when) did we veer off in a different (and commercialised) direction? Somewhere in the early 1980s?

  2. brianstansted62@hotmail.com says:

    There is far too much concern about whether or not financial advice is a profession, the reason it is so hard to attract new entrants has something to do with not offering a structured path like accountancy or the legal profession, but far more to do with the ridiculous regulatory framework within which advisers must operate. I wish that we could throw the FCA in the dustbin where it belongs and start again. The costs of regulation are ridiculous, but it is not just the cost it is also the sheer stupidity and lack of realism that is applied to financial advice regulation. We have a regulator that has no requirement to be accountable to parliament or any other authority. we have no long stop, which is an abuse of human rights. We have an ombudsman that can apply its own interpretation even when documentation and advice is watertight so that a consumer can still “win” a totally bogus claim. It is not an attractive profession/trade/career from that point of view, the only consolation is that one gets genuine satisfaction from helping clients improve their financial situation in spite of all the regulatory crap we have to deal with.

    • George Kirrin says:

      I think you’ll find the accountants and actuaries have their own regulators too, such as the FRC. I’m less sure about where the legal profession stands.

      I was actually harking back to the days of self-regulation.

      I would expect any self-respecting profession to stand up to such modern regulation, but in fact the tendency seems to be to capture for selfish, commercial reasons, or be captured and be compliant.

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