Influential analyst Ned Cazalet has a chilling prediction.
Life 2001, Cazalet's annual and costly tome on the industry, says: “The distribution landscape is changing dramatically as many old-style direct distributors wind up their salesforces, which seems to afflict parts of the IFA market, too. This is going to be very bloody and very brutal, leading to lots more consolidation.”
Cazalet goes on to predict that a third of IFAs will be lost in the next five years.
He believes big players such as banks are in the wings waiting to swoop and capture IFA distribution once the full extent of pension misselling liabilities becomes clear.
But Cazalet accepts that increasing wealth and the virtual death of direct salesforces have provided a window of opportunity for IFAs.
However, IFAs will not be flattered by his description of them. For Cazalet, they are characterised by their “fairly low skill level and thin capitalisation” as well as being too old (“high average age of 55”).
He writes: “The problem is that many IFAs are product-pushers and are spectacularly ill-equipped and lacking in the necessary technical skills and resources to deal with an environment where the focus will be on wealth preservation and pure investment advice.”
He does think there is a future for IFAs but believes it will have to incorporate a division of labour between routine financial planning and investment counselling outsourced to specialist firms.
Plan Invest joint managing director Mike Owen says this is already taking place either in the form of ad hoc referrals from or service contracts with generalist IFAs for his firm's investment skills.
IFAs can take some relief at Cazalet's statement that: “Killing the IFA off does not solve the problem but the IFA's role needs to be redefined to play to their strengths.”
Scottish Equitable public relations manager Scott White says: “Cazalet makes very astute observations but you have to remember that the flight to quality is already taking place. Sure, there will be fewer IFAs and sure there will be fewer providers but those who survive the war dance will be the cream of the crop.”
Berry Birch & Noble group marketing director Stephen Ingledew says: “A lot of what Ned Cazalet is saying is not new but already happening. It is an observation rather than a prediction.”
He also questions whether Cazalet understands what IFAs are. “It is like criticising a GP for not having brain surgery skills. Anyway, an increasing number of IFAs are taking further investment qualifications such as G20. IFAs are not fund managers but general practitioners.”
LIA head of public affairs John Ellis accepts Cazalet's criticisms that exams such as FPC3 which do not have a compulsory investment question need reviewing. But he points out this is already under way with the FSA and CII looking into the content of exams.
Ellis says if Cazalet is right about IFAs driving up commission from providers, then they are doing a very poor job of it as charges and commission have been coming down dramatically.
From providers, there is a slightly different angle. White says: “It is very rare for IFAs to take full commission or not rebate some of it, which means that the consumer is getting a better deal as a result of IFAs' strength.”
Ellis says IFAs are in an evolutionary process, gradually getting better and better.
Life 2001 is available to financial institutions, priced at£695. The report is available direct fropm Cazalet Financial Services on 020 7499 5818