Influential analyst Ned Cazalet is predicting a bleak future for the IFA market.
Cazalet claims IFAs will be squeezed out of the market as their bread and butter products become unviable because of low inflation and lower investment returns together with high charges and commission.
His views follow the publication of the Myners' report into institutional pension fund investment which highlighted concern over commission paid to IFAs.
Its recommendation of a second review into retail investment has been accepted by the Chancellor.
Cazalet supports the need for a Myners-style review, claiming there is clear evidence of commission bias among IFAs. He singles out IFAs' low sales of investment trusts, claiming this is because investment trusts do not pay high commission.
Cazalet believes investment advice to affluent people will be the remaining growth area but IFAs will have to improve investment skills to match banks and stockbrokers.
Cazalet says: “The 1 per cent world makes sense in a low-inflation economy, as the present charging structures are a relic of the high-inflation past. Seven per cent will be a realistic return on investments for the foreseeable future. If you add charges of 3 to 4 per cent, you might as well leave your money on deposit.”
Aifa director Paul Smee says: “IFAs will see challenging times ahead but why is the careful research of London Economics being ignored, after finding no evidence of commission bias?”