View more on these topics

Chris Gilchrist: Most networks will become restricted

The white flags are going up. As I predicted last year, national adviser chains are giving up on the notion of operating as IFAs after 2013. Barclays has shut down its high street IFA arm. Buckles boss Nigel Speirs says operating as an IFA is just too expensive. How long before other big operators haul up the flag of surrender?

Being an IFA under the new rules is very demanding. Running a multi-branch IFA under these standards and delivering consistent advice is a huge management challenge. Looking at the CVs of some of the people who claim they are going to do this, you might question whether they will be able to cut the mustard.

There are some wannabe adviser empire managers who believe waving share options in front of consultants will keep the show on the road – at least long enough to get that Aim listing and cash in their chips.

Wait a minute, didn’t some of the IFA networks try and fail with that strategy? Ah, but that was 10 years ago and this time it is different.

The real opportunity from 2013 is rebuilding the old-style direct salesforce as a restricted-advice proposition. That is what I reckon most so-called IFA nationals and networks will do. The principal offering will be restricted advice with a small IFA arm tagged on. By 2015, I predict the majority of genuine IFAs will be small and medium- sized firms that look more and more like accountancy practices. In fact, many of these IFAs will be in joint ventures with solicitors or accountants.

That is the new professional world. Back in the old one, the race is on to find the holes in restricted advice. Holes that enable the distributor to benefit from some of the Michelin-star dinner profits embedded in the products as opposed to having to survive on the thin gruel of advisory fees. I expect an arms race between purveyors of restricted advice and the regulators, who are at least sufficiently awake to know distributor- influenced funds are a disaster waiting to happen.

But I expect managers will find ways round the rules so they can make new-style direct salesforces far more profitable than IFAs. If you object to my use of the DSF analogy, then I put it to you if an adviser business creates products from which it earns revenues and recommends these to clients, it is no longer acting in the interests of clients but in its own interests.

Barclays’ self-serving plea to have high-net-worth individuals exempted from the RDR puts this in context. Its wealth management division could end up offering restricted advice, although with an IFA pimple on the end of its nose to keep up appearances.

I do not think new-style direct salesforces offering restricted advice will necessarily be a bad thing. They may provide a better service than bank clerks, although history tells us this is by no means a certainty.

But advisers working for nationals need to understand where these organisations are heading. Do you see the future of the new-style highly-qualified IFA as a grunt in a battalion run by a colonel whose ambition to become a general outweighs care for his troops? If not, you might want to work on plan B.

Chris Gilchrist is director of Churchill Investments and editor of The IRS Report


News and expert analysis straight to your inbox

Sign up


There are 13 comments at the moment, we would love to hear your opinion too.

  1. Andrew whiteley 29th March 2011 at 9:06 am

    Might we see the return of such financial luminaries as Trevor Deaves and Roger Levitt? The regulator must be so proud….

  2. John Bloomfield 29th March 2011 at 9:13 am

    There has been a debate on this very subject over on for some time.

    The problem for most IFAs seems to be what do they do right now to ensur ethey are in a position to remian indpendent at RDR. Do they stick with their network/national till the last second or do they look to go DA now?

  3. The Networks/AIFA have pursued an anti grandfathering position resulting in the constructive dismissal (without redress) of 20/30% of IFA numbers and the repatriation of a huge volume of trail commission back to the Networks and to the benefit of the Network practice values. Restricted Advice will allow poor quality product providers (not otherwise supported by independent advisers) to acquire tied distribution through Network membership. Those Networks not otherwise already in the hands of those providers will sell out to providers, keen to buy distribution. Now you understand the silence of the Networks!

  4. @Simon Mansell – there are a few networks out there that will continue to promote the Independant world and not simply see Restricted as a means to prop up failing business models. The challenge to these businesses is the move away from retention based income which will become very difficult to maintain post-RDR – how are they going to receive the income? Look at the Best Practice, Paradigm models – focused on supporting IFAs trhough RDR and adopting adviser charging early to ensure a smooth transition. Networks are not dead – but they will need to change their methods and that may be too much for some.

  5. I found myself agreeing with Chris on this one and read a post mentioning Best Practice and Paradigm who are I guess ‘new breed’. I cannot speak of Paradigm but I attended a seminar last year where Justin Urquhart Stewart and Ian Cooke who is the CEO of Best Practice were speaking about RDR. Justin is always a good speaker but Ian Cooke was truly inspirational in his views on independence, The RDR and holistic financial advice.

  6. Going DA could be a big mistake for advisers. If you are with a “quality” Network, stick with it. They need you and the good ones will already have a battle plan in place.

    Things like the new capital adequacy rules will make the DA route more difficult for small firms. There are also many other requirements which without some sort of support will make it financially difficult to stay in business.

    DA is not a panacea to regulation. Some firms have found this out already and I’m afraid others are going to learn a hard lesson.

    I’ve seen both sides and at this time I see the quality Networks as offering many of the solutions to the RDR which are simply not available to DA small firms.

  7. The individual adviser has always had to face the problem of being little more than a Jack of all trades.

    The Network model has never really addressed this problem and now it seems that the new definition of Independent is going to make it all but impossible for an Individual to use the Independent label. No one individual can be competent in ALL areas of advice – unless dealing at a very basic level.

    Joint venture accountancy/solicitor style will be one solution and if Networks are to serve any function it will be on a restricted basis or more likely as a provider of simplified transactional sales.

  8. Chris is spot on and strongly echoes the comments and announcements we have made.
    Incidentally a recent NMG independent survey found that advisers supported by Simply Biz were above average in both Qualifications and RDR readiness.
    Interesting also that the network supporter is anonymous. The time to go DA is now not in 12 months time.

  9. chris gilchrist 4th April 2011 at 4:40 pm

    Thanks Ken. I think some networks have over egged the compliance issues in DA. There are plenty of good compliance consultants out there who can help advisers manage the compliance issues.

  10. John Blackmore 5th April 2011 at 2:06 pm

    @chris There may be plenty of good compliance consultants out there but what happens to the “Individual” IFA who does not opt for your accountancy practice type solution ? The idea that anyone individual can be up to speed in all areas has always been suspect. Post RDR the new definition of Independent will surely push Individuals towards the accountancy type practice or more likely to restricted advice.

  11. chris gilchrist 5th April 2011 at 4:10 pm

    John, I think individual IFAs have no reason to be set on ‘running their own businesses’, which frankly wasn’t very businesslike for many advisers. What’s the objection to joining up with others in a ‘professional practice’ way?

  12. John Blackmore 5th April 2011 at 5:27 pm

    Chris. I have no objection to the idea of professional practice. It is not something that I would want to do myself but then I have never put my self forward as “Independent” nor as an adviser and certainly have no wish to be a professional.

    For many current IFAs though I would think, that not being able to run their own businesses will come as a shock and they may well prefer to go restricted.

  13. Sorry to be nosey here Chris but what is your position? I take it you are directly authorised? Do you use a compliance service? Do you use platforms and if so did you recieve any help with due diligence etc?

    Many thanks


Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm