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Cicutti: IFAs must take blame for trail troubles

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Here is a riddle for you. Question, what’s even bigger than the total number of IFA clients? Answer: the total number of IFAs’ ex-customers. Oh and by the way, the use of the word “customer” is deliberate.

Jokes aside, one of the most staggering omissions of all the discussion about the consequences of the RDR is not so much the impact it might have on consumers’ future ability to access independent advice but the fact that, given the choice, so few are currently prepared to remain as clients of their IFAs today.

Which is why I find unconvincing the current opprobrium being heaped on Standard Life for its free iPad competition, asking those who hold one or more of its investments whether they still have a “live” IFA attending to their needs to say so.

I suspect that if it carried out its work properly, making not just an iPad available but simply calling every one of its customers and asking a few questions, Standard would unearth a massive number of orphans as opposed to continuing clients.

Let me be clear. By “client”, I do not mean someone you might once have sold an investment to 15 years ago but would not recognise if you bumped into them while doing the Christmas shopping in Tesco.

My definition implies a sustained and - eventually - long-term relationship between IFA and client, consisting of at least once-yearly financial reviews and appropriate decision-making based on advice given on more than one issue - and requiring more than a one-off product sale.

If you accept this definition even minimally, what is shocking is how relatively small the number of genuine clients is compared with the far bigger number of those who could be but are not.

Just to give an example, an entirely subjective one: almost half of my acquaintances, people I mix with socially or professionally, have come into contact with an IFA at some stage in their working lives or since giving up work.

That is not to say they necessarily then followed through initial contact or, if they did, it remained a one-off transaction - of which more later. And, to be sure, we are talking about a relatively middle-class bunch of people. But I suspect that, in similar circles, most people have either accessed an IFA or strongly considered doing so.

What has gone wrong? How can it be that millions of people have slipped so easily through the fingers of IFAs in the past 15 or 20 years? I believe the main reason is that for too long the relationship between IFAs and their clients has been directly transactional, as already referred to. In saying this, I am not necessarily blaming advisers for this.

Over the years, it has become all too common-place for consumers to approach advisers with a specific problem, which they assume is resolvable in isolation. For example, a mortgage decision or a pension that needs setting up. Once the issue is sorted, the client disappears - either until the next time or never to be seen again.

Yet advisers too need to accept that the relationship they entered into with their clients over many years has been highly dysfunctional too. Primarily, it has been predicated on a “solution” that involved product sales as the key way of proving one’s expertise. Moreover, the IFA was paid not so much for his overall talent and skill as a financial planner but for his or her broking abilities and product selection. And providers have then colluded in the peculiar shaping of this relationship by ensuring that it was the act of sale that was rewarded, as indeed they had to in order to boost their bottom line.

To cap it all, from an IFAs’ point of view, it barely matters if the transaction remains a single one and is not sticky - that is, it does not lead to further work with that client. That is because as long as the client stays with the product for a relatively limited period of a few years, commission clawback is relatively minimal.

Even more important, an IFA has the potential to earn increasingly vast amounts of money from all the people he or she sold to without lifting a finger ever again.
That is the beauty of trail - and it is hardly an accident that by far the most vociferous defence of trail comes from those who are disinclined to lift a finger to earn it.

To return to Standard Life’s attempts to identify customers who no longer deal with their adviser, what is wrong with its approach is not so much its attempt to cut trail payments to the IFA but its refusal to rebate the commission back to the client.

If Standard Life is not going to service the client, and I cannot for the life of me imagine how it could do that, then the company’s attempt to halt trail payments is not fair.

But the responsibility for this happening lies not with consumers, who stand to gain nothing, or with Standard Life alone but also with all those IFAs who allowed it to happen in the first place over the years.

Nic Cicutti can be contacted at

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Readers' comments (27)

  • Well said, Nic.

    Keep in mind that there are lots of IFAs out there who view trail commission as some kind of deferred initial payment - a strange view of the world.

    It's funny how clients who receive a regular ongoing service never fall victim to the occasional direct approach from life offices. Why would they?

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  • Some good points, albeit the Same old same old story. I think you also have to remember Nick and and Martin, that not every IFA practice was initially set up on a fee only basis with retention of "customers " the number one priority. Many practices have developed over the years to provide ongoing services for clients using both fees and commissions to provide that advice and I believe most of that change and dev has happened only over the last 5-10. A little more credit to the IFA,s who are providing the advice and service would do wonders! Do a piece on how advisers are changing and providing a more proactive service to their clients and the benefits to all.

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  • Trail is deferred initial is another comment I often hear. I took lower initial and therefore higher trail is another variant. We realised a long time ago that trail is hard to justify on many clients where as you say Nic the relationship has changed over the years. So over the past we ensured we charged the client what it cost UP FRONT and trail was only used to pay us a fee for on-going service such as reviews and as solicitors put it, care and attention at all times! Sadly the FSA has bought IFAs line and the RDR has been compromised accordingly.

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  • trail won't matter soon Nic, levies will finish us all off!

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  • What Nic writes if fair enough. However, it is how Std Life do it and whom they contact.

    I had a client where i was doing an open market option. I was active with the client but Std Life told the client they could "cut out the middleman" and use their service instead of mine. Clearly, not cutting out the "middleman" as they became it and also trying to persuade a real client to dump their IFA who was actively servicing.

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  • Good article, if a little dated; clients are more savvy than ever (a good thing) and many are voting with their feet to find advisory firms who DO offer a ongoing relationship that is not predicated around a product sale once or twice a year.

    I've never met a client who didn't want an ongoing relationship with their financial adviser. As in, NEVER. That's not to say that all will accept your terms of business and fee rates for such a service - but that is another matter.

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  • Call me a cynic Wayne - but a good story about IFAs wont sell papers (or webspace!) - so I would say not much chance of that!

    However - I cannot see the fairness of Standard Life offering an incentive to clients to return a form which may entice people in to sending it back just with the hope of winning an Ipad - and possibly many a client ticking the box as they havent seen their IFA for a while ! But then when they come to retire and should have the assitance of an IFA - will the same people seek this or accept the offer of an annuity from Standard LIfe which seems the easiest option? Answers on a postcard - for the chance of winning a ??????? .

    Why not just send the letter out without the incentive -

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  • Largely agree with whats been said....the "millions slipping through the net" is for a variety of reasons and the press and negative portrayal of the whole industry collectively does not help at all, especially when a lot of IFA's, for a long time, have been doing the right things all along.

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  • This is a synical attempt by Standard Life to out the IFA, I recently received a leeter from Standard Life saying the Client was comming up for retirement which I new as I serviced them, I contacted the Client the same day only to hear they had sold the client there annuity, a complaint is now underway.
    I have had Standard Life contact my high net worth clients directly and offer them a direct service, despite the clients telling them they were being looked after they transferred the agency.
    It's time IFA's stopped using Standard Life, they are not the company they were.

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  • This is an interesting piece but what happens next?

    Standard Life and its peers have a problem on their hands. The new IFA landscape has little place for old-fashioned, big insurers. Less product will be sold and what is will be far more likely to go to specific wrap providers than a Standard Life Investment Bond or an Aviva Personal Pension (yes I know they have wraps too but...).

    Lots of sound IFA practices will no longer be able to use the 'independent' tag due to the bizarre new definition of the term invented by the FSA.

    Can anyone else see a business solution here that might not be 100% in clients best interests? Big insurers with loads of orphan clients and lots of advisory firms that can no longer claim to be independent.

    There are deals to be done here. The law of unintended consequences strikes again at the RDR.

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