In the ever-changing world of the financial adviser, new challenges face us every day – to our workload, manpower and income streams. Darwin was right when he said only the fittest of us would survive.
Probably the greatest challenge on the horizon is the removal of many trail commission payments to IFAs. Advisers have until April 2016 to transfer their platform clients to an unbundled proposition and persuade them to pay a fee for advice.
Trail on group auto-enrolment pension schemes will also be banned from April 2016. Trail income that was the bread and butter for firms with long-standing relationships with clients will disappear at a stroke. And much of it will be switched off well before the deadline by providers which, for once, are getting ahead of the game and forcing the switchover sooner.
What is amazing is the number of people in our industry who are still in denial. I have attended a number of IFA-rich events – including PIMS and the Retirement Planner Forum – and been astounded at the number of people who have put this issue on the ‘too difficult’ pile.
Many believe the FCA will bow to pressure and change the rules before the deadline. Others think they do not need to do anything yet and are simply burying their heads in the sand. Behold the ostriches.
Let us not pull punches – this is a genuine threat to firms across the UK.
Some clients will baulk at paying a fee – especially for group schemes where employers have never previously paid for advice.
Clients may decide not to take out an ongoing service option with their advice firm so the regular, reliable income stream will evaporate.
Some firms will inevitably go under. The ostriches have suddenly become dodos.
What needs to happen is twofold. First, there must be a dialogue between IFAs and providers.
All the providers have different terms, agendas and timetables. They could potentially turn off your trail at the drop of a hat.
Knowledge is key here and you need to know exactly what will happen to your trail income and when. This will take time. You may find yourself in negotiation with 40 or 50 providers so you need to manage the process carefully.
Now is not the time for vague promises. The terms need to be put in writing and the implications carefully analysed and explored.
Recommendations for products or providers should not be based on their trail commission plans, so if suitability indicates a route that cuts off legacy trail, advisers have to take the hit.
They just need to be sure they understand the impact this will have on their bottom line.
Second, advisers need to talk to their clients, who must be prepared for the changes and made aware that advice services add value and therefore is worth paying for – the argument they have had free advice in the past needs to be debunked.
The industry needs to start planning for this now so all future reviews include a conversation about remuneration.
Advisers ignore this at their peril and any firm that reaches summer 2015 without making plans is heading for extinction.
Carl Lamb is managing director of Almary Green