On reading his obituary, Mark Twain is said to have remarked that news of his death had been greatly exaggerated. Given the number of times that IFAs, particularly small firms, have been told that they are dead and buried, I think they could rightly express the same sentiment.
But while there are real challenges which need to be addressed – polarisation, PI and technology being but three – IFAs in general and smaller firms in particular have tremendous opportunities before them.
What the prophets of doom consistently overlook is the very real value that IFAs deliver to their clients. IFAs work with individuals, families and businesses on a daily basis, helping them address the basic problems of living too long or dying too soon.
Clients' need for reliable independent guidance is not going to alter. For each client, the only “brand” that really matters is the name of their own adviser.
Turning to some of the challenges facing IFAs, obtaining affordable PI insurance is probably the most difficult and pressing. It is equally fair to say that the latest EU directive has made things worse by insisting that firms must have at least £1m of PI.
However, our experience at SimplyBiz should give encouragement to the IFA market as a whole, as we have been able to establish very competitive PI arrangements for firms leaving networks and any others wanting to become directly-regulated IFAs.
In addition, subject to underwriting, we can now extend this facility to IFA firms which are already directly regulated.
It is also clear from FSA managing director David Kenmir's comments in Money Marketing recently that the FSA is making every attempt to assist IFAs.
In the longer term, the regulator wants to see the EU adopt a much more flex-ible approach to PI. This will obviously take time but I believe that, within the scope of the current EU directive, there is room for a more pragmatic approach.
It cannot be in the consumer's best interests for advisers to be hounded out of business when a combination of responsible restructuring, self-insurance and ongoing PI can provide a constructive solution for the benefit of all the parties – clients, regulators and IFAs.
The ending of polarisation is said to be another nail in the coffin of the IFA but this is a view which once more flies in the face of reality.
Far from being a threat to IFAs, it is becoming increasingly clear that depolarisation is going to provide significant opportunities. Indeed, since the end of polarisation was announced, we have seen the pendulum moving very positively towards the IFA.
It is as if the Treasury and the regulator, having achieved their objective of getting rid of polarisation, have realised how damaging it would be to leave consumers at the mercy of cosy deals between the big institutions.
The result is a number of important requirements to protect consumers, such as increased transparency, equivalence, safeguards against bias and measures to ensure that a firm giving independent advice in one regulated activity must be independent for all other regulated activities.
None of this will prevent some organisations wheeling and dealing behind closed doors and then trying to railroad their advisers into multi-ties.
What it will ensure, however, is that when the dust eventually settles and the consumer press wakes up to the realities of depolarisation, it will be IFAs who will be seen as the white knights on the side of the consumer.
Finally, technology. Far from being a threat, technology is the vehicle that will enable even the smallest IFA firm in the most remote corner of the country to provide services that will more than match those of the so-called industry giants.
Technology will also deliver accurate and timely information direct from the IFA to the regulator about advice given and business placed.
These developments are set to have a profound and positive impact on the future of small IFAs.
No longer will these firms need to pay 15 per cent-plus VAT – or even more – of their turnover to umbrella groups that fail to add value to their businesses. Instead, they will be able to opt for direct FSA regulation and build their own compliant, successful and profitable practices.
Is the small IFA dead? Not on your nellie. The future's bright, the future's IFA.
Ken Davy is chairman of SimplyBiz