There is more to IFAs than making a profit
Share
I like being in business. When you grow up with business owners as parents, it is almost inevitable you will end up doing something similar.
But it was not until about halfway through college that it became apparent the level of academic prowess needed for a traditional degree in something like history was missing from my genetic make-up. The more practical, less academic subject of business it was then.
Whether we realise it or not, we are all businesspeople. From sole trader IFA to chief executive of a multi-million-pound network, business is the name of the IFA game but often gets overlooked when it comes to debates on the retail distribution review and the future of retail financial services.
From some recent discussions, it would be obvious to conclude that large parts of the IFA sector are voluntary or charitable. All this talk about clients no longer being able to afford IFA services after 2012 and the mass market becoming disenfranchised is confusing.
I do not subscribe to the hard-nosed definition of a business. Companies should be profit-able but there can be more to it. I am re-reading Small Giants by Bo Burlingham, which features case studies of businesses that have chosen to be great rather than big. Some common themes of businesses that are successful by measures including but not limited to profitability are community involvement and creating a great place to work.
All this starts with profitability. Without running a profitable business, other noble goals cannot be realised. Behaving like a business, where the target customer has to fit criteria, means saying no to some people.
I love that IFAs want to help every segment of society. That attitude speaks volumes about the typical people who make up our profession, assuming that the attitude exists for truly altruistic reasons.
But it is time to stop confusing this charitable ideology with running a business.
Here is a suggestion for IFAs who are concerned about disenfranchising the mass market as a result of the RDR. Why not focus on running a business that works with clients who value and can afford what you do and then, as business owners, take some of that profit and divert it to charity?
Or maybe some local IFA business owners could create a charitable foundation to provide independent financial advice to those in their communities who cannot afford to pay for it.
The IFA industry cannot continue to berate the regulator for taking away the ability to work with a client segment that probably should never have been a client segment in the first place.
Martin Bamford is managing director of Informed Choice
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page | 50 per page |
Readers' comments (71)
Mike J | 15 Jun 2011 1:46 pm
He's just missing the point entirely - we don't want to tell people that used to get good advice that they can't have it anymore because they can't afford it - that's the whole point!!
Unsuitable or offensive? Report this comment
Financial Adviser dealing with normal people | 15 Jun 2011 1:46 pm
Martin, why should these clients not have financial advice, other than being ripped off by the banks?
This is what will happen when they are pushed away from financial advisers.
Of course, we can trust the banks to look after them cant we? Did you watch Panorama Martin?
Unsuitable or offensive? Report this comment
Anonymous | 15 Jun 2011 1:48 pm
We are, in effect, a charitable organisation.We give away thousands of pounds each year, in order that poor old hector can drive around in the car of his choice.After all that driving hector and his friends deserve a biscuit or two so we contribute towards the £600,000 worth of biscuits they consume each year.Our altruism knows no bounds as we sometimes forego our own Christmas party so hector and friends can have a big bash with all the trimmings.
And to top it all just in case anyone does not want to pay for things like financial services we fund a FREE MAS so hector and his friends can sleep soundly in their beds at night, knowing that they are a force for good in the evil world of FS
I could go on but I think you get the picture.
We are thinking of rebranding as Philanthropy FS.
Did I mention we have to listen to boring lectures from others who think we do not have a clue how to run our business?
Unsuitable or offensive? Report this comment
Alan Lakey | 15 Jun 2011 1:55 pm
It is nothing to do with the FSA which clients I choose to deal with and it is not for them to sit in judgement regarding the relationship that I have with my clients.
More to the point it is incongruous for a regulator tasked with increasing consumer confidence to set out rules that make it impossible for lower earning clients to interact with advisers.
Go back ten years and you'll find advisers arranging modest savings plans and pensions which started many on the road to financial planning. This was only made possible because the cost of the advice was provided by product charges. The clients never objected to this, indeed, quite the opposite, when I speak with them they tell me that this option is recognised as convenient - a cash flow tool, in effect.
What will these disenfranchised consumers do now? Succumb to off-the-page adverts? Deal with direct sales forces, use the banks, maybe?
Is it progress when an unthinking leviathan tells me and my clients that they know best and despite our preferences the old route is being closed and despite a torrent of righteous blather otherwise the detour leads to a dead end.
Unsuitable or offensive? Report this comment
Pissed Off IFA | 15 Jun 2011 2:00 pm
Basically Martin thinks that IFAs should only deal with the wealthiest in the community. I think this may happen given that RDR will cull a number of them. However, it will lead to "the man in the pub" being where vast numbers will get financial advice along with the CAB. The sad thing is, we have helped out the CAB (Citizens Advice Service) but do not think this will happen in future.
Unsuitable or offensive? Report this comment
DH | 15 Jun 2011 2:01 pm
OH dear !! Martin
That bang on the head must of really hurt.
Did Hectors wallet fall out of the window and hit you ?
Unsuitable or offensive? Report this comment
Evan Owen | 15 Jun 2011 2:02 pm
So much for nurturing a relationship with a poor student who may one be your best client.
Unsuitable or offensive? Report this comment
Simon Mansell | 15 Jun 2011 2:17 pm
Evan is spot on. We grow with our clients and the IFA model is far more sophisticated than Martin thinks. Of course Martin is still a young man and he may not have seen this unfold. Most IFA will see potential in a client that is not yet reflected in their wallet or purse and those clients should be allowed to seek independent advice. This of course is where no win no fee comes into play. A system that lawyers use that looks quite like commission selling! 'No win no fee' means that if you do not win your claim, you do not have to pay a fee. Ironic is it not Martin that at a time when we seek to ape professionals they beat us to it an ape a business model that we are shortly to bin!
Unsuitable or offensive? Report this comment
Bob Donaldson | 15 Jun 2011 2:20 pm
Yes everyone has to have their business hat on, but when PEPs were first muted it was easy to arrange £25 or £50 per month to go into an Invesco Perpetual PEP and we would be paid 3% of whatever went in over time. Not a lot but enough to cover costs and you had another client for dealing with over the years.
Those same clients now have thousands as a result of that relationship starting all those years ago and many have come back for further business.
However, I can't afford to do such work now due to the volume of paperwork that are needed and the time and effort to sit down with such clients. Furthermore the never ending liability for the advice is ridiculous.
I have just had a complaint sent in respect of someone who worked with me 20 years ago. It is an Aviva endowment plan sold by one of the most honest trustworthy people I have ever known who solemnly believed that the endowment was a good way to repay a mortgage taking into account tax relief etc etc.
Burns Anderson are charging me £360 for dealing with the complaint and if it goes to the Ombudsman I will end up paying even more all because of an ambulance chaser sending in the standard letter.
It is probably time barred but neverthless it is going to cost me.
That is why you can't deal with many individuals that deserve independent advice anymore. You also need people that have a good understanding of the advice given and are not going to complain the first time the investment goes down in value or the newspapers or Panorama jump on the bandwagon.
Unsuitable or offensive? Report this comment
Anonymous | 15 Jun 2011 2:22 pm
Would you all expect a solicitor to act on behalf of a client who has no money and allow them not to pay? I do not understand what the problem is with this article. As professional Financial Advisers we should advise the clients who have a need for advice, will value that advice and pay for it. In the past it has been these clients that have subsidised the advising of the clients who cannot afford it, where is the fairness in that? I think Martin is right.
Unsuitable or offensive? Report this comment