I have recently started to question our future in relation to the increasing costs and the ability to obtain cover.
If Inter-Alliance, RJ Temple, Millfield and Lamensdorf have closed or are losing money because of the downturn in the market and increasing procurement costs, what hope does that leave for the small and medium-size IFAs?
The recent announcement of a reduction of 1,800 in the number of RIs by the Sesame network suggests that some qualified experienced IFAs are being lost forever to the industry. Numbers will continue to decrease, as some will be unable to obtain PI cover. With the average excess on PI standing at £9,400, a successful claim may put individuals out of business.
The disbandment of most direct salesforces by insurers, means there are no breeding grounds for future IFAs.
It is unlikely that IFA degree courses will produce sufficient new blood to replace the losses, especially since a large sector of the industry offer self-employed contracts (that is, networks) and other smaller companies cannot gamble on the financial risk of salary-related packages.
Reductions in commission levels with the Sandler proposed products and the European proposals resulting in dramatic increases in the costs of PI against a picture of diminishing income does not fill me with confidence.
The FSA is talking about a back to basics approach and allowing more freedom on the definition of complaint cover. They may also allow single cover for groups of IFA who are unconnected. If they move at the same speed as they have previously, this will come too late in the day as the current pressures have driven out even more advisers out.
A sensible approach to PI and commission is crucial to all of our futures.
I believe that IFAs should consider banding together, not in a form of network, but as a collective or co-operative of businesses to work for the good of our clients, each other and our business.
The benefits could be the saviour that some individuals or small companies are crying out for, the difference between profit and loss. These benefits could extend to other areas such as compliance, PI cover, marketing, IT and admin.
Chartwell Associates (IFA),