Historically, private client stockbrokers have provided specialist investment services to wealthy individuals while IFAs have made general financial planning services available to the mass market. Although stockbrokers have long been perceived as part of the professional elite alongside solicitors and accountants who charge fees for their services, IFAs have struggled to shake off their image as salespeople selling the provider products for the highest commission.
But times are changing. The broker’s image has been tarnished by the use of high-pressure telemarketing sales tactics by a few while the reputation of IFAs has improved, thanks to the improvement in standards and qualifications.
Increasing numbers of IFAs describe their target market as high-net-worth (or ultrahigh-net-worth) individuals – those that traditionally utilised stockbroker services. Brokers offer the opportunity to invest direct into equities on an execution-only, advisory or discretionary basis. IFAs provide financial planning advice, but – as with stockbrokers – the client is likely to ultimately invest in equities. Both sectors are managing their clients’ wealth and are referred to as wealth managers.
Stockbrokers are paying more attention to clients’ long-term financial needs and objectives – just as IFAs do. This focus is integral to the FSA’s TCF requirements, which apply to both sectors.
So, to whom should clients turn to construct an investment portfolio – IFA, stockbroker or both? Rightly or wrongly, most believe a stockbroker’s services represent a higher risk/higher reward option than those of his IFA cousin. The broker is likely to only handle a percentage of the client’s money, leaving the door open to other financial advisers. Brokers are faced with difficult choices – offer HNW clients a “complete” range of services by opening an IFA division, form alliances with IFAs or see clients utilise the services of IFAs with their own broker links.
Rather than develop a separate IFA division, some firms, notably American company Edward Jones, which has a UK subsidiary, have combined the functions of stockbroker and IFA with one individual performing both roles.
For HNW IFA firms, the fact that brokers are developing in-house teams signals increased competition for clients and high-calibre candidates. However, for advisers with the right qualifications and skills, this can present opportunities.
Advisers who can demonstrate experience of developing private client business, usually on a fee basis, and can support this with relevant advanced qualifications such as G10, G20, G60 and G70, often see their natural career path moving towards the management of client portfolios within the HNW arena. Stockbroker organisations with in-house financial planning divisions are increasingly able to offer this opportunity.
For clients, it means they can access a wider range of services under one roof but they will not receive any cross-subsidisation. Individuals using stockbrokers expect unbiased advice for which they pay a fee (or annual management charge). The same applies to those using the services of a stockbroker’s in-house IFA. Clients should view the services as separate and expect to pay for each.
Just as brokers and IFAs worked more closely together a decade ago, so it is apparent that there is, again, increasing synergy between the two. They recognise the need to develop their own strategies and decide how best to work together to develop private client business and funds under management.
Robert Campbell is a consultant at Envision Financial Services Recruitment.