I am the senior partner in a firm of chartered accountants. In the past we have provided independent financial advice to our clients through a subsidiary
IFA firm. The costs of this have significantly outweighed the profits produced. We are considering using the services of a local IFA but what are the advantages of doing this and what should we be looking for from the IFA?
You are probably in a similar position to other accountancy firms across the country which are considering the future of their IFA subsidiaries.
Since the introduction of stakeholder in April 2001, the margins associated with pension and investment business have been noticeably tighter. Suddenly, the profitability of running an IFA subsidiary has become less attractive for firms of accountants and solicitors.
You suggest a very reasonable alternative, which is to utilise the services of a local IFA firm. From a profitability point of view, the advantages are clear – none of the costs and a share of the profits – but there are a number of considerations and aspects to look out for.
Service should be at the forefront of your considerations. By this, I mean the level of customer care that the IFA can provide to your clients. After all, you will be personally recommending clients to use this IFA. How would it reflect on you if it did not live up to your own service expectations?
Service can mean lots of different things to people, so what should you be looking for? Does the IFA firm proactively contact its existing clients
with focused information? You should be looking for an IFA that is at least as client-focused as you are. Does this local IFA produce a regular financial planning newsletter that you can send to your clients?
An advantage of being a local IFA can be this dedication to providing quality service to customers.
You should look in detail
at how this IFA handles the advice process. Good service could also be construed as confirming all advice in writing. This would ensure that your clients understand exactly what is being recommended to them on every occasion.
How does the IFA charge for its services? As an accountant, your clients are used to paying a fee for your services. However, traditionally, IFAs have been reimbursed for their work by receiving commission on the back of a product sale. If this is the only charging structure your IFA offers, then consider if your clients will be comfortable with it. Growing numbers of IFAs now offer the choice between accepting a fee or being reimbursed through commission but it may be that a fee-charging IFA sits more comfortably with the payment habits of your clients.
Interrogate the IFA to discover the level of qualifications and experience within the firm. The Financial Planning Certificate is the minimum qualification requirement for advisers but do they hold the Advanced Financial Planning Certificate or are they working towards it? To complete the AFPC, an IFA must pass three exams, including one compulsory module, G10 on taxation and trusts. There are other modules within the AFPC which you should look for. G60 is the pension module which the FSA requires an IFA to hold before allowing them to make recommendations about occupational pension transfers. Is your local IFA qualified to G60 level? If not, how would they look after the needs of your clients with occupational pensions?
Experience is also an important consideration. Does your IFA work as a general practice or does it have specialisms in different areas of financial planning? There can be benefits to having a number of advisers within the firm each devoting time to different areas. Perhaps you should consider an IFA which has an investment adviser, a pension consultant and a long-term care specialist?
Another area to consider is the IFA's use of technology and not just the ownership of it. What technology does it use and how is the IFA using it to deliver understandable information to clients in a speedy manner? Examples could be pension transfer report systems for personal and occupational pensions. Think how much value a service like this could add to your clients.
Consider succession planning – not yours but theirs. With an average age of an IFA being in the mid-50s, think about how advice will continue to be provided to clients in the future. Should you be considering an IFA which has engaged in succession planning or perhaps a younger practice? It would make sense to consider choosing a local IFA which has the future servicing of its clients – and yours – as part of its longer-term business plans.
Finally, take up references. Ask the IFA for permission to approach some of its clients for confirmation of the quality of advice and service given.
The type of IFA firm that you select will depend on what you consider important factors. Take the time to decide what you are looking for. A business arrangement with a local IFA can be a profitable and happy arrangement for all parties.