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