The antics of the hyperactive builders of national IFA empires would be amusing if they did not have such a strong whiff of humbug.
What they are really doing is using the values of the IFA brand to build what will become the equivalent of direct salesforces after 2012.
Under the retail distribution review proposals, national IFAs will almost certainly offer restricted advice. I have yet to be shown how anybody can build a national IFA that fulfils the quite onerous requirements for a genuine IFA as the FSA has defined them – full research on all markets and products that could be appropriate for the client.
Of course, you can do the research but that is the easy bit. What nobody has explained is how they can deliver this professional IFA service to a consistent standard across the nation.
I believe the only way you can deliver a national service to common standards is by making it restricted advice and that is what national chains will do.
Now watch the gymnastics. The empire builders will say there really is not any difference between full professional IFA standards and restricted advice – it is only terminology, after all, the fee-charging methods are the same. They may be helped by the fact that some of the bank wealth managers, who want to go on selling their clients the bank’s own structured products, are likely to fail the independence test. A large chunk of the current IFA sector will try to pretend that a restricted advice proposition is as good as full independence.
That example makes the point about the difference. The banks do not want to have to assess all their rivals’ structured products – they want to sell their clients their own. The restricted advice regime will allow them to do that.
National IFAs offering restricted advice will not be able to drink from the deep well of profits available to the bank wealth managers. But they will, I am sure, find ways of making a bit on the side.
If you are building a national IFA, you do need to make a bit on the side, especially if your dreams include a stockmarket listing.
The real battleground for the new regulator after the RDR will be the attempts by purveyors of restricted advice to dip their beaks in the product profit pipeline.
Managing your own funds is the all too obvious one, and demonstrates how a lot of people still do not understand what the words “professional adviser” mean. You cannot be a professional IFA and run your own funds. You have stopped being an adviser.
I think it will take a few years after the RDR for the public to get it. Genuine professional IFAs will be few and far between.
Restricted advice providers will range from the production line (such as the banks) to the iffy (people who used to work for life companies pretending to be IFAs). Genuine independent IFAs will mostly be small firms. Unlike the restricted advice chains, they will – as other professional firms do – sink or swim solely on the basis of the quality and value of the service they provide, and will get most of their clients from referrals.
I reckon these tortoises will be around long after the hares have become somebody’s lunch.
Chris Gilchrist is director of Churchill Investments and editor of The IRS Report