The Germans are coming to the UK in a move which may send shockwaves through the IFA community as German IFA Marscholloek Lautenschlager & Partner launches a UK operation next month.
There is a great deal of difference between MLP, which has its headquarters in Heidelberg, and the traditional UK IFA. Many might see MLP consultants as a new breed of IFA. Ninety-six per cent of the consultants at MLP are graduates, predominantly in their 30s.
In the UK, the average age of IFAs is 54 and there is a well-publicised reluctance to recruit graduates.
MLP's client base is made up entirely of high-net-worth individuals, with most being graduates concentrated in the legal and medical professions.
Its move into the UK could pose a serious threat to fee-based IFAs in particular.
High-street banks are also increasingly targeting this market. This year has already seen Abbey National launch its Inscape brand and Lloyds TSB launch its Create service.
IFAs are also making a more concerted effort to hang on to business. For example, Hargreaves Lansdown has introduced the Hallmark wealth management service.
But what makes MLP's approach radically different is its commitment to spotting potentially wealthy clients while they are still at university. This is done through its network of branches around university campuses. It offers students free books and seminars on how to prepare CVs.
This strategy has achieved considerable success in Germany, Austria and the Netherlands. MLP's profits rose by 40 per cent over the past year to £68.8m from £48.6m in 1999. It has a client base of 370,000 and has 2,000 consultants in its 220 branches across Europe.
Scottish Equitable training manager and Chartered Insurance Institute vice-president Peter Williams says: “With 30 per cent of 18-year-olds in the UK in higher education and with this figure set to rise to 50 per cent by 2010, targeting graduates is a sensible long-term approach.”
But it may be difficult for MLP to find enough graduates with recognised financial qualifications in the UK to enable it to grow as it hopes.
LIA public affairs director John Ellis says: “There are some highly qualified individuals around. MLP may have some difficulties but there are 5,000 people who are AFPC-qualified.”
MLP spokesman Jutta Funck says: “We have so far appointed 11 UK IFAs who have the Financial Planning Certificate. The exams in the UK are much less demanding than in Germany.”
Many in the industry see the new entrant as a sign of the buoyancy of the UK market for independent advice.
Millfield Partnership managing director Bryan Beeston says: “This is great news for the sector. MLP has experience in a number of territories. Its entry to the UK confirms the potential in the UK market. There is room for several such large firms.”
Specialist financial services lawyer Armstrong Neal Financial partner Gareth Fatchett says: “This new breed of IFA is to be encouraged.”
But MLP will find the UK market differs from Germany in a number of fundamental ways, including distribution of financial products, regulation and training and compliance.
In the UK, IFAs dominate the sale of financial products but in Germany only 15 per cent of financial products are sold through IFAs, with 10 per cent through insurance brokers and about 70 per cent through banks. But Germany is slowly looking more similar to the UK market.
Industry expert and former regulator and Labour MP Dr Oonagh McDonald says: “Financial products are predominantly sold through the banks in Germany but there is a growing IFA market with a focus on high-networth individuals.”
Williams says: “There are two big differences between Germany and the UK. The market in Germany is not equity-based or unit-linked. Distribution is the other big diff- erence as banks are the dominant players compared with IFAs in the UK. In Germany, only a limited amount of products are sold.”
But the German market does not favour the idea of independent financial advice, which is perhaps one reason why MLP see the UK as such a lucrative market.
Ellis says: “In Germany there is a preponderance of agents but not IFAs. Partly due to contracts, people tend to frown upon an IFA-type of operation.”
MLP will have to adapt to this very different distribution structure and to selling a much wider range of products if they are to become IFAs as we understand them in the UK.
MLP also faces a challenge in the form of the UK regulatory environment. In Germany, the banks have control. Banking supervision is carried out by the Federal Banking Supervisory Office in co-operation with the Deutsche Bundesbank. In the UK, MLP will be regulated by the FSA.
But German regulation is also becoming more like the UK. McDonald says: “The new conduct of business rules are creating the possibility of a single financial regulator in Germany.”
MLP does not foresee difficulty in adapting to the UK market. Funck says: “Regulation is not that different now.”