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Mattioli Woods predicts the death of the small IFA

Most small IFAs will not exist in 10 years time, according to Mattioli Woods chief executive Ian Mattioli.

Mattioli, who heads the wealth manager and Sipp and SSAS administrator, says as clients become much more aware of the total cost they are paying due to the RDR they will become unwilling to continue paying charges at their current levels.

In an interview with in week’s Money Marketing, he says: “I do not think small IFAs will survive because clients will not be able to pay, or will not want to pay, the 3 or 4 per cent [total costs] they are currently paying.”

Mattioli says smaller firms will be particularly affected because of the costs of the large number of external services they use.

He says: “Many IFAs give away a lot of their total expense ratios. They will have a platform cost, they will have Sipp or SSAS costs, they will have fund management costs, they may even have administration costs, and on top of that they have their own costs.

“If you take all that together, that is where you are going to get these massive costs.”

Mattioli says a “fair” total cost of investing is between 1 and 1.5 per cent.

He predicts this cost pressure will affect adviser firms with up to 15 advisers and these firms will either drift out of the business or end up as part of larger businesses over the next five to 10 years.

Mattioli also says smaller firms will struggle to remain independent as they do not have the expertise needed to remain whole of market for all business areas.

Norwest Consultants principal Harry Katz says: “We have heard this many times before.  Many people in my position have been in business just as long, if not longer, than these large firms.”

See page 37 for our profile interview with Ian Mattioli

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Comments

There are 25 comments at the moment, we would love to hear your opinion too.

  1. Possibly Mr. Mattioli, not exactly a great way to win potential business from us moribund small IFAs though is it?

  2. Time will tell I suppose but to suggest that ‘larger’ firms will outlive the ‘smaller’ ones seems disingenuous. It is the smaller firms that are the innovators when it comes to cost savings and have been the most resiliant in the face of change. History confirms this.

    I cannot help but notice that it is nearly always the ‘large’ firms that lose clients to firms like ours; ironically and often for the fact the larger firms are seemingly overcharging or not actually providing anything of merit for the charges they demand. I’m convinced the agruement for value will trump price for those who need good advice and high quality personalised service.

    I’m sure Ian will not want the advice gap to widen any further. There is room for all [types of adviser] and more as long as the race to the bottom does not push us into the cul-de-sac Ian hints at.

  3. How to win friends and influence people !? – the death of the “small” IFA has been predicted since I started in the industry 23 years ago. Like bacteria – occasionally poisonous but the most resiliant life form

  4. Sounds like another Ratner

  5. I echo the theme of the readers comments above.

    We typically acquire clients from businesses who are not delivering the service the clients seek – often banks and other large FS firms. Whilst cost is important, from my experience clients place more importance on value and service…. a person they can meet face to face or engage in personal email/phone calls who isn’t trying to ‘sell them something’.

    I also fail to see where charges of 3-4% come from (unless there are implications of ‘hidden’ fund costs included). Yes an IFA introduces an additional cost, but what is the cost of self serving – not only the time cost but also the risk of misjudgement.

    IFAs should have been disclosing their charges in £s for some time now and from what I can see RDR has had no negative impact on our client relationships – in fact it’s boosted levels of new enquiries.

    Whilst there are some cost savings in consolidation with big institutions – you then lose the personal contact and control and, potentially, client ‘trust’ – you only need to look at the way high street advice has been impacted by RDR.

    It would be foolish to ignore external risks however I always saw RDR as a big opportunity for experienced, professional, client focussed financial advisers.

  6. Whilst you can’t fault the logic, it is a bit like concluding the earth is flat just because it looks like it usually.

    as Harry says“We have heard this many times before. ”

    Small firms are nimble and can adjust to changing politics.

    I agree costs are an issue and economies of scale are needed (that applies to my firm too), but instead of the Network model where we are talking one big regulated firm, we just need to talk network of shared resources by DA firms pehaps.

    That is what I am talking to other (small) firms about and what I think IFACentre is trying to facilitate so that the future of access to Independent advice can be maintained.

    The seminar we are hosting on 30th and 31st January in Ramsgate (Kent) which is open to IFACentre Members, IFAs and even restricted advisers (who might then consider a return to Independance) drop me an email if you’d like a copy of the draft agenda, presenters and issues being covered. phil.castle@fescape.co.uk

    Attendance only comes with a moral obligation to pay a charity for your lunch as Vanguard, Novia, Time & Alphdex are sponsoring the event so far.

  7. There are two sides to every coin! The other side shines brighter! RDR stops hidden subsidies and back room deals done for the benefit of large producers to the detriment of small producers. In short it equalizes product cost and focuses on the added value that can be given, and given in most part by the small IFA who has a “close” relationship with his or her clients built up over many years and based on trust. .

  8. Oh dear – here we go again. A big boy trying to establish hegemony.

    He talks of total costs – presumably from his perspective and own business plan – which appears to be based on the Tesco model of ‘piling it high and selling it cheap’.

    It seems he is mainly concerned with large group pension plans. This is not something the smaller IFA gets involved with or is very interested in. Indeed from my own experience I have clients who are members of these who come to me for the advice that these large firms just don’t provide on an individual basis. Indeed I have always thought there was a distinct conflict of interest. Mr Mattioli no doubt regards the sponsoring company as a client – as do most large benefit companies – and as such leaves the individual member to go hang. That in itself is fertile ground for the smaller adviser.

    When it comes to our type of business we are as far removed from Tesco as Fortnum & mason. We are boutiques mainly dealing with better off individuals who have been our clients for 10, 15, 20 years or more. Many of us are now advising 2nd and 3rd generations of the same family. We don’t want the Mattioli Woods type of business. Clients of large firms often have a succession of different advisers over the years, we are a constant and that is something our clients value. After all it is often said that we are in a ‘people business’ and when it comes to relationships a small firm as it over a large one in spades.

    As far as charges are concerned (for our business sectors) dream on Mr Mattioli. Many of us operate like John Lewis – ‘never knowingly undersold’. Sure there are platform costs. Often these incorporate SIPP costs, but when it comes to our fees you just can’t get near us. Many of us are not even vat able so apart from our competitive charges before VAT we are additionally at a 20% advantage.

    Research – perhaps Mr Mattioli is unaware of the internet of firms such as Morningstar, Trustnet and the almost limitless supply of other research sites.

    I think the most appropriate response is a quote from Churchill when replying to Hitler’s jibe that he would wring Britain’s neck like a chicken – “Some chicken, some neck!”

  9. Well looking at their post RDR Client Agreement, they appear to charge quite well! Initial Investment Fees of 2%, 0.85%pa on-going and/or Director hourly fees of £260. This is presumably on top of their product fees of for establishing SIPP’s and SSAS’s with fees of £2500 to £3000 plus vat to “cover the costs of providing the pension scheme and the mechanical process of establishment”!

    I was expecting to see that their charging structure was revolutionary and almost charity like but
    Seems to me that the cost of their services is top end of what most of us, lowly small firms charge!

    I really don’t know why MM give this sort of ‘none news item’ space!

  10. @ Haryy Katz

    Not so cheap … if you know what I mean ‘arry!!!!

  11. Following the logic above, how come the large firms are always the most expensive, and small firms can deliver more, with leaner resources and can still be cheaper for the client? The only firms I know whose charges are this high (3% plus) are large firms such as SJP and the banks. We, for example, would expect to be around 1.6% (total cost of everything), and are looking to reduce that again if we can and maintain the quality of the service we deliver. I know other small firms are already below that.

    Is this an out of context quote? I find it difficult to believe that a senior person with meaningful experience in our profession could say something so naïve? Perhaps he comes from a retail background where this dynamic is largely true?

    Death of the IFA? Don’t hold your breath!

  12. Seems to me that the majority of the best run, client-oriented adviser firms in this country are small firms. It’s the big provider-funded product-led groups which are struggling.

    Some are no more than party planners – primarily remunerated to get bums on seats for provider pitches. A shambles of a business model which is finally unraveling to the ultimate benefit of consumers.

  13. Utter Twaddle from Mattioli Woods!

  14. table for 3 then! Gervais Williams and G Ratner!

  15. I never contribute to these things but here we go. We are a small work form home IFA (chartered) and typically charge 1% initial and 0.5% on-going. We can now offer a basic wrap at 0.2%, and fund management solutions starting at 0.25%.

    So that’s 1% upfront with on-going from 0.95% all in. However each case is different and we offer an investment solution on a case by case basis, with no shoe-horning. We still offer a proactive mortgage service as well.

    I would argue the future is bright for the small IFA. Clients really value a personalised service.

  16. Ultimately my clients will decide if I survive or not, issues such as super clean share classes are not important to them.

    10 basis points may be a lot of money to a platform, 2 -6% extra performance from quality funds means more to a client.

    Getting a good deal on price is desirable, it depends whether the client sees the value in the product or the advice being given. If the former then they probably do not need an IFA.

    At the corporate level a client is a unit of profit, at adviser level they are human beings with hopes, wants and aspirations, which we should never forget.

  17. @ Snippy

    Not that I do the shopping, but I’m led to believe that not all items are that well priced at Tesco. Anyway judging from recent and current trading statements they are presently having a pretty torrid time.

    Odd that Sainsbury’s – who don’t claim to be as cheap – are doing so much better.

    Rather proves what we small guys have known for years – price is not everything – by a long chalk. (How many of us drive a Dacia Sandero?)

  18. Looking at his photo, I think he will be lucky to last 10 years himself, let along us IFAs! Especially if he keeps making comments like that…

    Clearly this man has no idea, every year demand for my services is increasing as matters become increasingly more complicated, and clients get continually let down by the big boys… anyway, it will be nice to retire at some stage.

  19. I heard Gerald Ratner interviewed on Radio 4 some months ago and I think it is time to stop referring to “doing a Ratner”, give the poor guy a break!

  20. We are living in a new age where wealth & technology which has advanced advice down to the mass market where formerly it was the preserve of institutional investors & the wealthy. The old guard “professional adviser” that serviced these high net markets is in danger of being left stranded as the tide goes out and the sea of technology outpaces, outperforms and undercuts them. Lawyers, accountants, stockbrokers, DFM’s can no longer hide behind their professional status when a true meritocracy ensues – you are only worth the value you impart.

    The small IFA has embraced technology, passed exams, weathered the regulatory storm and still they survive mainly because they have the commodity that others lack – client respect, integrity and rapport. This commodity is the guarantee of our future and the death knell of those who do not possess it!

  21. @Simon – I couldn’t have put it better. Some of my clients employ me as like Simon I publicly disagree with the FCA when I think they are wrong while staying within the rules and especially the law.

  22. Though ,as many have said, there seems to be a certain logic to these comments , he has missed one key factor …. People ! Yes clients will look more closely at cost but there are those who for decades have charged more than the average yet continue to grow . People still wang to deal with people and they generally like to sit down with a local adviser they know or who has been recommended to them . Large firms will suit some , as SJP do now but smaller nimble firms will always play a role and are not driven by growth and shareholder value. Numbers might fall in the next few years but I think longer term the future looks bright for all parts of the industry, other than the large insurers who will continue to move away from product manufacture as margins are squeezed and better investment opportunities lie else where. Finally the public are now beginning to understand that quality advice comes at a (fair) cost otherwise they have to take responsibility for their own decisions and the risk attached is all their own!

  23. Hmmm ‘Large Restricted Adviser / Product Provider decides to annoy bespoke client focused Independent Financial Advisers / Financial Planners’ might have been a better albeit slightly longer headline.

  24. Reading between the lines I think Mr Woods is a worried man !!

    Attack is not always the best form of defence ?

    It reads you are in need of defending yourself, with the argument of cost

    People don’t walk around eating yellow snow just because its cheap and looks pretty, there is a reason its cheap and looks pretty !!!
    Is Mattioli Woods stocking up on yellow snow ?

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