I recently had an intensive conversation about depolarisation with one of my IFA colleagues. My argument was that with the advent of depolarisation and the introduction of multi-ties, there will be a blurring of the distinction between an independent financial adviser and what used to be a tied agent.
I argued that the tied agent will disappear because of strategic links between companies. We can see that already happen with some companies. I believe that most of the tied agents that currently exist will turn themselves into multi tied agents and therefore, in the mind of clients, there will be no distinction between an independent financial adviser who offers policies from the whole market and a multi tied agent, who offers products from a limited number of providers.
Surely, the argument will be from the multi-tied agent that if that group of providers is sufficiently representative of the market as a whole you are getting just as good a service, are you not?
I believe the impetus to turn from a multi-tied agent to an IFA will disappear. Some of the best IFAs started out as tied agents.
My colleague's argument was that tied agents, having turned themselves into multi-ties, would then take a step further and become IFAs because of their clients' desire for a more independent status.
I can see his point and would hope he is right because then this would be the breeding ground for future IFAs who would then be better prepared to become an independent financial adviser than the current system.
But I cannot see this happening because most of the multi-ties will have backing from huge financial organisations. The likelihood is their commission payments will be enhanced and they will get freebies and incentives for staying multi-tied.
Let us hope I am wrong and there are enough individuals who do become IFAs. We, as a group, certainly need a system which produces new IFAs because IFA firms as a group are insufficiently capitalised to take on trainees. This is a huge problem and will become greater as the current crop of IFAs start retiring.
In order for IFAs to differentiate themselves from multi-ties, they have to offer something that is so unique to their clients that their clients would not think of using any other form of service.
What is that unique thing that IFAs must offer? Must IFAs value themselves at a level to which the majority of clients cannot afford? The uniqueness must come from service and added value.
In order to provide this service, I am saying that as an IFA you will probably have to concentrate on the high-net-worth end of your client base because they will be the only ones who generate enough income for it to be commercially viable for you to continue to provide advice.
My personal belief is this is wrong because high-net-worth clients are quite easy to advise really. They have the income to be able to achieve their objectives. All they need is the expertise of an IFA to do that.
The problem lies with clients who are slightly trickier to advise. They have greater need for advice from an IFA but may not at that moment have the income. However, because IFAs are moving their client base towards the higher end, these clients will be left behind and probably will not be offered independent financial advice unless they seek it out. We all know that clients sometimes put convenience before choice, limiting their ability to get the best result for their circumstances.
The job of an IFA is not only to advise the wealthy but also to advise the needy. Many of us do this and there are clients on all of our books that are loss-leaders but we understand that these clients need advice. In fact some of my most satisfying cases have been with this type of client.
I am not saying we should put ourselves out of business to serve the whole market, but we need to place a value on our services that does not alienate a group of our clients. This will be the difficult task for IFAs in the future world of depolarisation when competing with the multi-ties.
I want to be able to advise all clients, irrespective of their net worth. I want to be able to select a client on the basis of whether or not I can help that client, not on the amount of income I will earn. Unfortunately, depolarisation will not allow me to do that. How do we resolve this? I have no idea.
John Winful is principal of John Winful Associates