The single biggest problem facing IFAs today – what might that be? I imagine that many might think it is professional indemnity insurance.
After all, it is difficult to get. Premiums are massively higher than they have been in previous years and excesses are such that IFAs are self-insuring and paying a premium. Only the biggest of claims will be covered by the policy and I guess that is why most of us would not trade without it.
But professional indemnity insurance is not the biggest problem. So perhaps it is regulation? A relatively new regulator, it is only just over a year since N2, with different terminology and a new rulebook (or books) presents a problem to IFAs but not an insurmountable problem.
IFAs are resilient, they are used to change and soon get used to new processes. The regulators will probably come up with a new historical review of past advice based on the benefit of hindsight but, hey, that is something IFAs are used to as well.
Could the biggest problem be a reduction in the level of commission paid to intermediaries? Possibly but I sense that we are already used to the 1 per cent world. Many firms have moved towards different markets, moved towards charging fees and introduced new processes to survive in a world where margins are reduced. It is not an enjoyable change but it is something we are getting used to.
Depolarisation is with us. Could that be the biggest single problem? Again, I believe the answer is no. Depolarisation brings no consumer benefit at all. You would need an IQ just above room temperature to believe it did but it is not a threat to the IFA. Certainly, some will migrate to a “let's pretend to be independent” culture just like it used to be before 1988 but many IFAs will remain true champions of the consumer and provide unbiased advice.
No, the single biggest problem faced by the IFA today is poor admin from product providers. In the whole of my 30 years in financial services, it has never been worse.
The cost of this is more dramatic than any increase in PI insurance, significantly greater than any extra regulatory cost and has a bigger short-term impact than lower revenue levels.
The service, if that is the correct word, from product providers is a disgrace. Now I should point out that I do not blame the employees at the sharp end. The administrators we speak to on a day to day basis are trying as hard as they can to help but they are badly let down by their managers.
Responsibility for the terrible state of affairs lies entirely with the senior managers in these organisations. Quite honestly, they are perpetrating a con on the IFA community.
They have convinced themselves that they can shed hundreds, sometimes thousands, of admin jobs and somehow their technology solutions will hold the whole thing together. Frankly, it is a joke but not a particularly funny one.
How many times each week are we told that there is a 10day, 15-day or, the best to date, a 22-day backlog for even the simplest task? Even getting such a thing as a fund valuation is not possible when you have taken over the agency of a policy. The product provider still needs to record the change by letter of authority and then chances are if it is an old series type of plan, it will not be on the company internet site.
Rarely, if ever, is a simple policy change completed correctly. Often the product provider system cuts the IFA out of the loop and the IFA ends up with an incomplete record. Often, the policy record of the product provider is different to the record we hold and rarely is it the case that ours is wrong. This does little to help our confidence.
The cost to us of having to do the admin at least twice is much greater than the extra cost of PI, regulation and reduced revenue put together. Any IFA carrying out a Swot analysis of their business would have to put “product provider administration” as the single biggest threat.
Unless the senior management of product providers start to take responsibility for this mess and devote the necessary resources to get it sorted then the word “services” in financial services will truly be a misnomer.
Nick Bamford is managing director of Informed Choice