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Don’t count IFAs out

IFAs have faced threats in many forms but don’t underestimate their resilience

Predictions of the demise of the IFA have been a perennial feature of the IFA community and every time the view has been expressed, the counter view, that the resilience of the IFA should never be underestimated, is rightly voiced.

One could take this as meaning that, five years later with IFAs alive and well, there was no threat at all and journalists have been creating panic in the sector to fill column inches. But in reality, there have been threats in many forms – political, regulatory, legal, economic, even demographic.

The knocks that the industry has taken are well known and the effects on some individuals have been catastrophic. Pensions and endowment compensation is probably the biggest single IFA killer but depolarisation and the confusion over the menu will have been a drain on resources that may have made some advisers close to retirement hang up their boots early, thinking that another change of business model simply is not worth bothering with.

For others, the perhaps self-created, perhaps realistic fear of the regulator will be another reason to give up the ghost as they approach retirement, hoping their PI insurance will protect them through their dotage against any as yet undetected retrospective regulatory recovery action.

The soaring PI premiums of a couple of years ago will have been enough to push a handful of other advisers over the brink while for the majority, the experience will have been an unwelcome drain on their bottom line. This actual and quantifiable loss will have been made even more unpalatable for any who read last week in these pages that 10 of our competitor countries in the EU, including erstwhile committed European France as well as Germany, Italy and Spain, have not bothered to implement the Insurance Mediation Directive which led to the 1.1m PI requirement.

IFAs who have paid out these premiums and who have had no claims must be thinking they have been throwing their hard-earned money down the drain. The matter is then made even worse by the chairman of our own regulator – Callum McCarthy – admitting there are “huge difficulties” in implementing a single European market in financial services. So McCarthy is effectively saying that it has all been a waste of time and money. Except, that is, for the growing army of consultants who think up these ideas and then charge governments and companies to implement them. Or not.

The threat to the IFA sector from other retail financial services distribution channels is also often cited as a challenge. This is a genuine threat, at least at the margins, but I see IFAs potentially getting squeezed but not seriously challenged. As real wealth grows and individuals become more knowledgeable of financial matters, increasing numbers will demand the quality experience of seeing a IFA.

Sure enough, there will be those who join distribution operations other than the independent sector just because of the commission on offer. But there is and always will be an element in human nature that wants independent advice – both to give it and receive it. Consumers will always understand that whole of market has to offer better choice than a limited panel.

Similarly, there will always be advisers that want to be independent. There will always be bancassurer or multi-tie intermediaries who think they know better than their line manager or their in-house panel selection team.

These people who under-stand how their employers make money out of them will want to be independent because they realise it is in their own financial interests to do so. They will also realise that, happily, their clients’ interests are aligned with theirs in pursuit of indep-endence. Rumours of the demise of the IFA sector will persist but actual demise is exaggerated.

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