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‘Adviser-charging could wipe out IFAs’

The move to adviser-charging questions the future viability of major networks and nationals, says former Origen chief executive Gareth Marr.

Marr, who is now director of The Red House, says the FSA’s vision for the future of the IFA sector is unattainable for the vast majority of adviser firms.

He says: “Large networks and nationals have business models that are so based on commission that the cost of converting will decimate their economic model and lead to a wipeout of the IFA community.”

Marr says providers that own IFA firms face the additional burden of restructuring these businesses as well as being hit by the costs of adapting to the RDR themselves.

He says: “The change from up-front earnings to long-term fees will cause a huge hit on short to medium-term profitability. I do not think providers have thought that through – it is going to be a major challenge.”

Sesame network and direct managing director Nick Kelly says the challenge of moving to adviser-charging will lead to evolution rather than a decimation of the market.

He says: “There will be a number of challenges for the industry but in the medium to longer term, models will evolve and networks will be at the forefront. Where there is demand for change, advisers will move to a new structure and we will support them through that transition.”

Friends Provident spokesman Peter Timberlake says: “We have not seen an estimate of the cost of making the transition to adviser-charging so it is too soon to say what impact that will have. We should be looking at the benefit these changes will bring to clients.”

In the RDR consultation paper the FSA estimates the one-off costs of adapting to the review would be £430m plus £40m a year. But many in the industry, including Ernst & Young, suggest the regulator has underestimated the costs of adopting adviser-charging.


Steady States

The US market had an incredibly strong run from early March until early June, with the Russell 2500 index up by an impressive 51.3 per cent. The rally was sparked by the announcement of the US treasury public private investment programme and was sustained by positive signs of stabilisation in leading indicators of economic activity.

Woodford continues to question green shoots

Invesco Perpetual head of investment Neil Woodford says the UK economy is not likely to recover for another three to four years and that “green shoots” in the equity market are “illusory.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. FSA – RDR
    It would not surprise me if the FSA’s long term goal is to eradicate IFAs from the market place. They are intent on making our lives as difficult and miserable as possible and aim to simplify products and restrict choice to such an extent that the public will not require advice. I for one am sick to death of the FSA treating our sector as its whipping boy, I thing Gordon Brown is way off base aiming to give this power mad government department more power.

  2. ‘Adviser-charging could wipe out IFAs’
    Everyone is talking about adapting business models and changing systems and processes and the money that this will cost. There are many people in the industry who have said that this all can be done and seem to welcome this new move of scrapping commission blindly. But I have yet to see anyone addressing the biggest issue of all, actually getting the masses, not just the high net worth clients, to this new model. Because I honestly think you cant. It is in the interests of high net worth clients to pay a fee as the commission on most if not all of their product purchases will be higher than the fee that can be charged therefore they are always better off with a fee option.

    But the reality is the rest of the population will not find that a fee option is cheaper than the commission and therefore will elect to go direct to the banks and insurance providers to source their products with no advice at all. This will in turn create a new issue not miss-selling but miss-buying. However the problem with miss-buying is the client only has themselves to blame but that does not change the fact that they are disadvantaged.

    However what worries me the most is most people will decide to just not engage with financial services at all through fear of being charged fees and then the overall wealth of the nation will just deteriorate still further.

    I have to wonder the true motivation for this move as it seems impossible to me that this will ever benefit the greater population. Why would a client taking out a £100pm pension which would earn the advisor £190 pay the fee of £400 necessary for advising and setting up a plan such as this. And just to deal with the objectors who would say if you were only going to earn £200 then that should be the fee, the problem is clients doing £500pm which would have earned upwards of £1000 would also be paying our £400 fee so we have to have a standard fee that will keep our businesses afloat or we wont be here for anyone.

  3. David Quarrell APFS 23rd July 2009 at 3:22 pm

    Adviser-charging could wipe out IFA’S
    It is easy to say ” lets look at the benefits RDR brings to clients” but if there are no advisors left to advise, how does that benefit a client? Apart from high net worth clients, how many are prepared to pay a fee for advice? Ifa’s must be unique in that our work is heavily scrutinised with no cut off to that scrutiny, our income is being eroded on every side and god help us if a network goes bump as we have little recognition or legal protection.

  4. Chris Clare’s stumbling block is the same as mine
    It is the regulalr savings issues (and protection although there is no read across from the RDR yet) that need addressing and how to factor the cost of advice over time. RU64, stakeholder, personal accounts, not being allowed to deduct commission and yet setting up and advising on anything regular is just as costly as single premium business. Why can’t the FSA and AIFA look at an industry wide factoring system as a replacement to indemnity commission?
    Getting rid of commission without a replacement is like throwing the baby out with the bathwater when you need to recyle the bathwater as it’s all you’ve got to drink too!

  5. Charging could wipe out IFAs
    Almost all comments refer to us poor IFAs and what the RDR will do to us. As a profession for th longer term think what it will do for consumers: stop churning to a large degree, encourage service and long term relationship, allow ongoinf income at modest but profitable levels oevr the longer term and have a real professional attitude from the start. YES, it will cause a headache for fims that have only themselves to blame for being ostrich like over recent years and not planned to move olt renewal fees and upfront fees. All is possible with a good business plan and almost any bank will provide funding. The problem is too few of use are bsinessmen who need to produce a business plan that is workable and stop acting as product sellers. The long term gains make me think my son would be proud to enter the new financial adviser profession whereas now there is no way he would look at partly educted salseman masquerading as a service provider. Harsh but true!. I am still a working IFA – not unusal in having workies as such for 30 years but we must move on. Be a business. Perhaps an indsutry wide factoring service to tde the slow ones may be humane: I might contribute but have no need. The new fees and regular premiums do work together.

  6. Bucks IFA (currently 50-50 fee and commission) 27th July 2009 at 11:17 am

    fees will stop churning?
    The comment that fees will stop churning is naive to say the least. Fee generation is just as much a result of sales activity as any other sort of remuneration. Suggesting selling one asset to move into another, notionally to generate a profit, but inevitably to generate a fee, is the way most stock brokers have been earning their livings for donkeys’ years. The only party guaranteed to be better off is the broker.

    In fact, fee remuneration is more likely to increase unjustifiable sales/purchases across the industry than initial commission once the disincentive of intial charges are removed. It may appear more respectable on the surface, but that will soon disappear when the misselling scandals continue unabated.

    Forgive my cynicism but, after 25 years in this business, I see this legislation as being a prime contender for the law of unintended consequences.

  7. The blame game
    In my opinion the RDR is just another wave of attack on the IFA industry. The FSA has a clear mandate and that is to bring the IFA community to its knees and then brake their hold on the financial sector. Why cant they appoint an IFA to the position of CHAIRMAN of the FSA who would have an insite of what an IFA is all about. Our duty as IFAs is to help clients get the best for their money and keep them away from the SHARKS circling around them with open mouths and we are hated by those in high places for that very same reason. The latest FSA attack is nothing new, its all about eradication of the IFAs. It’s not the first wave of attack and it wont be the last. However, what surprise me most of all is the IFAs that are in a position to charge fees beating up on other IFAs, and calling them un-professional and making out as if all comission IFAs are giving bad advice because they are commision charging IFAs. What research have they compiled and can honestly shear it with the IFA community as proof that the mejority of the UK consumers are prepared to pay a fee for advice. I have been in the industry for meny years and whenever a client is faced with the option of fees or commission, 100% of them goes for commission. These clients are low to medium income clients and most of them are highly intelegent and do understand exactly what they are paying for. There is a place for commission charging advisers and they should be left alone to run their business as they are an asset rather than a threat to the industry. Each charging structure has its place and each should compliment each other. The Mr/Mrs know it all and the do gooders who thinks that one size fits all don’t understand the consept of true market economy.OOM I wonder what the eventual outcome will be.

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