IFAs who refuse to change with the times will vanish from a market which is set to alter beyond recognition, acc-ording to new independent research from Datamonitor.
Datamonitor carried out in-depth interviews with 20 IFAs and 15 product providers to examine the future of the distribution of financial products.
But it says the shape of things to come is not all doom and gloom and IFAs who react to the challenges of the threatened removal of polarisation, reduced commission charges and poor service will prosper.
Datamonitor confirms the commonly held view that smaller IFAs will have the hardest time and it says they have to become part of big networks or be acquired by a big player if they are to survive.
It also predicts these networks will all be multi-tied if this new category comes about in the event of depolarisation.
One of Datamonitor's most startling predictions is IFAs going head to head with product providers in a move which could destroy the existing provider's distribution chain.
But the industry is divided over the likelihood of this happening and the impact it would have.
Aifa public affairs director Tracey Mullins says: “The industry is moving forward and constantly changing but obviously in order to become a product provider you need the necessary capital. IFAs would have to weigh up the costs involved with the creation and marketing of products against the financial benefits of going down this route and regulation also has to be taken into account.
“It is more likely badging will increase with the greater use of wrappers from a package of product providers offering various policies under the name of something like Joe Bloggs IFA retirement planning service.”
To keep their powerful position, Datamonitor says product providers will buy IFAs.
National IFA RJ Temple communications and marketing manager Liz Walkington says: “Product providers will definitely invest in big IFAs and they will move quickly to get the best names. But I think it is more likely about half a dozen different pro-viders will take about a 10 per cent stake in one IFA as it would put them in a stronger position and gets round the issue of best advice.”
DBS chairman Ken Davy says: “There are rumours all the time that product pro-viders will buy large networks. Distribution and technology are key elements to success so it is perfectly feasible some product providers will acquire distribution.”
Datamonitor goes on to issue a call to action to providers to sort themselves out in light of ongoing complaints from IFAs about the poor level of service they give and the need for greater consultation and interaction, support, clearer product information and better trained provider staff.
Datamonitor also highlighted how IFAs are getting more vociferous about service levels, claiming they have deteriorated. The drop in standards has also intensified this year with the launch of low commission products such as stakeholder.
Roger Saunders Asso-ciates IFA Jon Whyte says: “With lower commission, cli-ents are saving money. Pro-viders are saving money by pushing work on to us. As a result, IFAs are being sque-ezed. Some IFAs are starting to charge life companies for time sorting out problems they have caused.
“The problem is the system is wagging the dog and the situation is getting progressively worse.”
IFAs also say the problem of product providers all operating different IT systems should be dealt with by the creation of one common trading platform.
Buckland IFA Andy Bur-nett says: “All the providers use different systems and even within one provider different products have different systems which is proving difficult to sort out.”
But the product providers insist they are doing all they can to provide a good service to IFAs.
Scottish Equitable director of business development and marketing Ken Hogg says: “We have a well-trained sales-force out there giving good face-to-face support to IFAs.”
Standard Life head of IFA sales Paul Matthews says: “We do take customer satisfaction and service seriously and we invest heavily in local branch presence.”
Despite the challenges, Datamonitor says the IFA market continues to grow. IFAs generated new life and pensions premiums totalling £4.7bn in 2000, an increase of 6.1 per cent on 1999.
But it says continued gro-wth will depend on changes to the market and it makes three different predictions which it calls pessimistic, optimistic and neutral.
The optimistic outlook is the IFA share of the distribution of individual life and pension products will increase to 69.3 per cent by 2005 from 58.5 per cent in 2000.
The pessimistic view is it will decrease to 52.3 per cent and the neutral outlook is an increase to 62 per cent.
Datamonitor paints a less bright picture with its predictions for the IFA share of distribution of retail unit trusts and Oeics.
It predicts a decrease to 51.8 per cent by 2005 from 61 per cent in 2000 in an optimistic future and to 39.3 per cent and 47.8 per cent in a pessimistic and neutral picture respectively.
Datamonitor believes IFAs should be taking the initiative now and gearing up for future challenges, especially smaller firms, if they want to keep and increase their share of the distribution cake.
Datamonitor analyst Darren Oliver says: “Marketing makes the difference and firms must do it well if they want to survive in the long term. People like Mark Dampier of Hargreaves Lansdown are an example of someone doing it well.”