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Brave the new world

As the shock of the FSA proposals to scrap polarisation diminishes, now is the time for IFAs to take a step back from the furore and assess their place in the new world.

Many of us share valid concerns that the new regime stands little chance of bringing about the consumer clarity that the FSA says it is looking for.

Many of us also question the foundations of proposals based on consumer research which simply does not stack up. However, now is the time to put that aside and start contemplating the future.

The writing has been on the wall since the FSA ann-ounced its plan to reform the polarisation regime and Ron Sandler expressed his intention to tackle the disclosure regime and investigate commission bias. With the FSA&#39s proposals now set, the question for IFAs is how can they stay independent under the new structure and what happens if they decide not to?

Those who do not follow the path of new independence will lose more than their badge of independence. They can also expect to lose clients who may want the certainty of knowing that the advice they get is the best independent investment advice available – that is fee-based advice.

To make matters worse for those who turn their back on independence, new client referrals could dry up, particularly if accountancy and legal firms choose to ban referrals to all but the new independents.

Things will almost certainly get worse still for IFAs who refuse to move with the times. Depolarisation is one thing but the Sandler review, due to be published in the summer, could bring chan-ges which further strip away their independent status, for example, scrapping frontend commission in favour of fixed charges, regardless of product type.

These IFAs will find they are not equipped for a new low-charging environment and will find there is no exit route available to them.

For many medium-sized and bigger IFA operators, the options are not quite so bleak. In fact, in some cases, they will be actively welcomed. It would take a brave operator to hang on to their independence when there are offers on the table from companies seeking to pay handsomely for a stake in their future.

The pitfalls of this route are very apparent – a lack of control and a loss of a share of the profits.

Moving to multi-tied status without divulging a share of equity could be the answer for some. But this will depend on the level of support they get from life companies. Will they choose to support the IFAs in their hour of need? Will they continue to sponsor promotions to the same degree despite falling margins and greater market share? Finally, exactly how much profit will be left to the adviser who has spent years building up his business to a mature size?

But this could not be a route open for the many smaller IFAs who simply do not have the breadth and depth to catch the eye of the life companies.

They will need to seek support elsewhere through affinity groups or panels with institutional backing.

Yet again, this option means that they have to trade off some of their independence into the bargain.

IFAs that choose the route to total independence will be the real bravehearts of the new world.

They might be characterised as staunchly independent and ambitious, seeking to build the future of the industry on their own terms. Their clients will most likely appreciate their transparent approach and follow them on the quest for holy grail of the fee-based future.

I make no apologies for over-romanticising – the new total independent will need to be brave, strong and adaptable to the marketplace. But they can find support together, too.

Training support will be vitally important if the new independent is to stay ahead of constantly changing regulation. It is possible that the FSA may step in by offering discounted training packages for IFAs making the transition to total independence.

Alternatively, there are other sources of training support such as the Fee-Based Foundation, where IFAs can learn directly from others who have made the transition.

The coming months will be interesting and we will see a variety of solutions offered to help IFAs navigate market changes. Finding the right solution may become difficult.

For the IFA embarking on a route to total independence, they will need to avoid funding support offered by groups which rely on institutional backing, which may restrict them to multi-tied status, and instead seek out genuinely independent support from like-minded IFAs which leaves them flexible to move with consumer demand.

Before any IFA makes a decision on which route to take, they should bear consumer trends in mind. A Mintel report published recently revealed that consumers are spending more on financial products and this was put down to their being “more canny” and “keeping an eye on their future”. The report forecast this increase in spending will continue.

Clearly, the opportunities are there for IFAs that succeed in making the transformation. However, they will need to match up in terms of the disclosure of fees and the quality of their advice.

While deciding the future is not a decision to be taken lightly, neither is it one that should be delayed. Take advice now and choose a path.

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