While 2006 was a year of many things for me and my fellow IFAs, two areas of development really stood out as having the biggest impact on the IFA sector and its development and sustainability.
The first is wrap and the realisation by the industry as a whole of how big a role it will play in the way that quality IFA firms do business in the future.
Wrap has been talked about for many years but, other than a few early adopters, Transact being the best out there, talk is all it has been.
The year has seen lots more chat but there now seems to be a feeling in the market that the jostling for position is over and the battle lines have been drawn.
On one side, you have IFA-driven propositions and on the other, you have provider-driven ones. The former is clearly focused on the client while the latter is likely to be distracted by a need to protect legacy assets. I, and many others, believe the IFA market will come to repolarise along these lines during the next few years rather than along the lines of an artificial regulatory agenda.
But in order for this to happen, those running IFA firms need to make a simple but important decision about the future direction of their businesses. Do they want to be, and to be seen to be, truly independent advisers selling their wisdom and knowledge or agents for the life industry selling products?
I think 2007 will be the year that most have to come down on one side or the other.
For me there is no choice. For too long, a big chunk of the IFA sector has had an unhealthy reliance on life companies. Wrap, in its truest sense, gives IFAs an opportunity to change this, effectively cutting the apron strings that have for so long tied them together and I think they must grab that opportunity with both hands.
Only once this has been done can the IFA sector really start moving towards being seen as a profession.
The second, and to me the most important, is profitability, as without it there is no sustainability in the sector. Anyone who knows me knows that I am passionate about profitability, not only for my own business but also for the IFA sector as a whole.
Unfortunately, profit and IFA firms are two things that historically have not been too closely associated. However, I think many IFAs and the rest of the industry finally woke up to the scope of the situation during a speech given by Sir Callum McCarthy at the Savings & Pensions Industry Leaders’ summit in November. He revealed that while the top 21 IFAs in the country had a combined turnover of £640m, they had operating losses of £22m.
If it is true what they say about turnover equalling vanity and profit equalling sanity, the people running IFA firms must be some of the most vain businessmen and women in the UK.
But to me it is more than vanity. It is bordering on stupidity and would not be accepted in most other areas of business.
Furthermore, what sort of message does it send out to those customers who have entrusted the running of their financial affairs to the IFA sector? Not a good one, that is for sure.
At Helm, we took the decision many years ago to put profitability at the centre of the business. We realised that focusing on turnover would not get us to where we wanted to be.
It was the best decision the business has ever made and has enabled us to become masters of our own destiny. I only wish more IFAs would do the same.
Bruce Wilson is managing director of Helm Godfrey.