Paul Farrow: Another test of IFA resilience
The decline and fall of IFAs has been wrongly forecast many times.
Will 2012 turn out to be a defining year for IFAs - a year which sees their numbers dwindle as the RDR countdown intensifies?
Let’s hope not. IFAs always get in the neck for being commission-hungry salesmen but I fear that the FSA has gone after the wrong people and the RDR could encourage people to turn to banks for advice.
There has long been an argument that advice given by banks and building societies is inferior to that offered by firms and individuals who advise across the entire market. Bumper fines handed down by the FSA last year, to Barclays and HSBC (for its long-term care division NHFA) do little to suggest otherwise.
The RDR is arguably the biggest challenge IFAs have faced and the nub of the matter boils down to the end of commission.
Ignore the rights and wrongs of commission and whether consumers suffer from product bias or are sold in appropriate plans because of “a cash incentive”. The issue is that consumers are going to have to pay a fee at a time when cost is major issue for households. Money-saving is the name of the game, not moneymaking at this time. It is all about discounts, cheap deals and cut-price bargains. Even the fund management industry is recognising that the level of fee they charge could make a difference, which is why a raft of new low-cost active funds has been launched.
In short, we have become a nation of penny-pinchers and we are reluctant to put our hands in our pockets.
Research last year, published by Aviva, suggested that most people talk to their friends, surf the web and pop to their local bank before opting to see an IFA.
These results come long before the rules change which will mean that people will know exactly how much they will pay for a product when they talk to an IFA.
The fear is that if advisers charge fees, more people will turn to banks. The RDR is supposed to mean that customers are treated fairly, yet any initiative that drives more consumers to the banks could be to their detriment.
But there is hope.
History shows that IFAs are a resolute bunch. After all, the death knell of the IFA has been sounded countless times before.
At the turn of the millennium, the impact of technology and the expected launch of low-cost products, such as the stakeholder pension, was expected to cut numbers by 40 per cent.
It didn’t happen. Stake-holder pensions were a spectacular failure while IFAs embraced technology rather than ignore it and clients have benefited as a result.
Depolarisation was also expected to see IFA numbers fall but again that didn’t materialise, while mounting professional indemnity insurance costs have also failed to deter advisers.
In 2006, Deloitte warned that “increased competition from areas such as bancassurance and multi-tie advisers” would put pressure on IFAs to quit. It did no such thing.
The other positive is that surveys also suggest that IFAs will meet the RDR challenge.
More research from Aviva shows that more than three-quarters of IFAs believe that they will still be in business a year from now while concerns about gaining further qualifications have fallen to 35 per cent.
Aifa, which represents 70 per cent of IFAs, tells me that member numbers “have not changed significantly since 2000”. It will be in the nation’s interest that it is able to repeat the statement a couple of years from now.
Paul Farrow is personal finance editor at the Telegraph Media Group