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Independent View – Tony Byrne

Without a shadow of a doubt, today&#39s seemingly relentless onslaught of reviews, misselling scandals, exam requirements, compliance and training and competence standards, red tape, media attacks and overall Government antipathy towards IFAs and financial advisers in general represents probably the most challenging environment ever seen for even the most resilient of IFAs.

Let us list some of the current issues – the Sandler rev-iew, CP121, the Pickering review, the Inland Revenue review of long-term savings, DP 9, Equitable Life, split-capital investment trusts, the pension & FSAVC review and the endowment review.

What should the IFA make of all of this? Well, the clear trends appear to point towards more reductions in commission from product providers, the need to charge fees, higher exam requirements, a greater need for licensing in different advisory areas, the importance of specialising and knowing your market, the need to focus on high-net worth individuals and/or corporate clients and more compliance, T&C and bureaucracy.

There is also the increasing threat and lobbying power of big product providers, especially bancassurers, which are putting weight on the regulators to change the shape of financial services increasingly to their advantage.

The major problem seems to be that the regulators are full of nice people doing their best but who are not truly qualified by experience and knowledge to regulate in a practical and commercial manner.

Huge amounts of paper spew out of the FSA into the offices of the regulated firms, scandals continue to happen and reviews, once started, take forever to conclude. Of course, the cost of regulation continues to rise to meet the ever spiralling costs of salaries, bonuses and running costs of those nice FSA people.

The biggest current threat to IFAs is probably CP121 with its proposed depolarisation rules, the introduction of multities and the effective destruction of the IFA sector. This one really takes the biscuit.

Since polarisation started, we have seen an almost constant increase in the IFA&#39s share of new business in the UK. The number of financial advisers in the UK today numbers around 70,000, whereas a few years ago it was more than 200,000. This has mainly been due to the reduction in tied agents.

The IFA stimulates competition among providers which have to increasingly innovate, produce new products and improve investment performance, etc, to capture a share of the generally more lucrative IFA business from high-net-worth individuals and the corporate sector.

Clearly, the public appreciates the role of IFAs as consumers have voted with their feet in an open market and opted increasingly for IFAs.

This is the spirit of free enterprise and the free market economy that truly works. Just take a look at the US, which is generally perceived as a much less regulated country but home to the most successful economy in the world.

I firmly believe that a government has no role in fixing prices in a free market, be it for stakeholder pensions, Catmarked Isas or the IFA&#39s method of charging for independent financial advice.

The US had had anti-trust legislation for decades but, apart from the enforced Standard Oil break-up, the laws have been largely unenforceable because the best way to arrive at fair prices is in the open market, matching the willing buyer with the willing seller. It works. It really does.

The 1 per cent world has produced a number of improvements for consumers in the shorter term but in the longer term, it is likely to create a number of disadvantages, for example, less financial advice to lower-net-worth individual, less choice (more and more product providers will withdraw from the market because it will be unprofitable), less sophisticated products, etc.

CP121&#39s proposals that an IFA must charge fees and that those fees must be capped, even if the commission rec-eived is higher than the fee charged, strike me as absurd.

What if the client agrees to the IFA receiving a fee and a commission in recognition of the excellent advice given? Why should the FSA (alias the Government) interfere with how IFAs are remunerated when we now have full disclosure anyway?

What is wrong with a menu of services with a range of payment options, including a commission-only option? Surely that is the free market, is it not? Let the client decide.

Sadly, CP121 in its current form means the demise of the IFA, less choice for consumers, less innovation, less new products, less competition between product providers and less access to financial advice.

Yet again, those nice people at the FSA have an idea that they think will work but in practice it will not. Why? Because in a recent survey, nine out of 10 people said they would prefer financial advisers to be paid fees for financial advice but when asked if they themselves would pay just £150 for financial advice, only one out of 10 of the same people said yes.

We have come a long way with independent financial advice. Let&#39s not kill the goose that lays the golden egg. God save the IFA.

Tony Byrne is managing director of Byrne Williams


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