Just a few years ago, it would have been hard to imagine a financial adviser going bust. With investors keen to pile in to rising stockmarkets, business was booming. Discount brokers could not count the cheques fast enough as they piled through the letterbox and IFAs did not have enough hours in the day to keep up with the demand from enthusiastic investors.
Of course, the tide turned. As with all boom markets, there followed a bust which left many IFA businesses struggling for survival.
High fixed costs, falling incomes and a rise in complaints from disgruntled clients all created difficulties. We only hear about the high-profile names but it is a certainty that many IFAs are now experiencing tough times.
Some businesses have been unable to survive while others are clearly in existence only because product providers continue to prop them up.
With more business failures predicted in the sector, the debate is clearly set to continue about client compensation and just who is picking up the tab (you and me). We all pay our levy to the Financial Services Compensation Scheme but we grimace at the thought of our hard-earned profits effectively being used to compensate for the mistakes of others.
I am as unhappy as the next IFA. After all, despite the misguided beliefs of those on the outside looking in, this is not the easiest business to make a profit from. Many clients would probably not believe some of our overhead figures, with the cost of regulation, professional indemnity insurance and so on.
However, despite my occasional rant, I am happy to accept that paying my levy is part of the price of being in business. Clients have to be protected and I have no doubt that the existence of a compensation scheme increases confidence in all our clients.
But what if the assets of a failed IFA business are acquired out of receivership? Should the new owner take responsibility for compensation thereafter? There has been much debate on this issue recently but I believe that important points have been missed.
I have never struck a deal with the receiver of a failed business but, if I did, I certainly would not be willing to accept any historic liability.
Why on earth should a buyer in these circumstances pick up the liabilities created by a previous business owner? After all, the buyer will not in any way have benefited from any historic profits arising out of activities that have subsequently gone pear-shaped.
In fact, any business taking on the client book of a failed IFA is likely to be picking up a mass of issues from unhappy and disgruntled clients who need to be looked after.
That is no easy task for anyone and the only sure thing is that it will involve a lot of time and resources which are likely to produce very little income in the short term.
The fact is that the clients of an IFA which has gone out of business need a white knight to hold their hand and will often require help to put them back on the right track.
Anyone who therefore dismisses a willing buyer as an opportunist who is simply picking up a business on the cheap should perhaps think again. The client's interests must come first and we must stop moaning about the levy.
Graham Bates is chairman of Bates Investment Services