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Investment matters

Having been hit by the retail distribution review, treating customers fairly, the credit crunch and Budget tax changes, IFAs face a host of challenges. This is especially true if you are an investment specialist.

I recall our decision to become an investment specialist in early 2000. With hindsight our timing could not have been worse. There followed three consecutive years of stock market falls – the worst three consecutive years for 60 years.

Fortunately we survived and started developing our business into one capable of coping more comfortably with future downturns.

The past six months have felt much like the first half of 2000 after the bust following the technology boom. Confidence among investors is low and we are having to reinvent ourselves, raise the bar, improve our service to clients, increase our efficiency and reduce costs.

We have made sacrifices but, because our business model is built around servicing our clients, we are much less affected by current market conditions than most.

I read about the results of a recent survey of more than 750 IFA firms which discovered that 80 per cent of their annual turnover was reliant on new business. In other words, there was pressure to write new business and earn initial commissions. By contrast, my firm’s new business income represents just 20 to 30 per cent of its annual turnover. This is a much more sustainable structure.

So what should financial advisers do during the current market downturn? We think that focusing on existing clients is always a good place to start. Research has shown that 70 per cent of new IFA business comes from existing clients.

Consider rebasing investment bonds, recycling tax-free cash from income drawdown plans, reinvesting bonds into collectives for lower CGT liabilities, consolidate existing collectives/shares into wrap accounts and funds supermarkets.

Review all of your costs and suppliers and cut out unnec-essary waste.

We recently made the decision to change our back office system provider, 12 months ago we changed our support services company and a month ago we changed our investment funds data provider. We have also joined a marketing support company. Quality and service and not cost was the main reason for doing this.

We lost a senior member of staff a few months ago and decided not to replace him. We became more efficient by simplifying our systems and procedures, doing some outsourcing and giving more responsibility to other team members.

We have even decided to reduce our office space because we had far more space than we were using.

We welcome the changes required by treating customers fairly as it will force us and other firms to be more more focused on customer service, although the FSA’s timescale for implementing the changes is hardly fair.

As for the RDR, customer agreed remuneration is fine. And becoming more professional is a laudable aim. But the notion that having a high level of professional qualifications, and being remunerated by fees makes you more professional per se is nonsensical. Being a professional has far more to do with your conduct, your degree of skill and knowledge, including the ability to apply it, and high ethical standards.

Unfortunately, the sheer weight of regulation will continue to be a drain on our time and profitability. The RDR and TCF will create challenges for the smaller IFA firm.

However, change brings opportunities so we are looking to the future with confidence.

Tony Byrne is financial planning director at Wealth And Tax Management

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