All the surveys I have ever seen about IFAs have one thing in common, they tell us that what clients value is face-to-face contact and personal advice. After the retail distribution review, presumably this is what any sensible adviser will focus on.
But I can already see some strategies being implemented that look like subtracting rather than adding value to the advice proposition.
Advisers operating on their own or in very small firms have always had the problem that they spend too much time on administration at the expense of meeting and servicing clients.
The consolidators’ answer to that is scale – scores or even hundreds of advisers justify bigger and better administration systems that release advisers to spend more time with clients.
The trouble is that this only works through standardised solutions, such as discretionary fund management, model portfolios or out of-the-box inheritance tax solutions.
The harder you look, the more it seems like a restricted advice proposition and although that may have a place in the market, it is clear that the only people pushing it are empire-builders who see commercial advantage in it, not professionals dedicated to giving their clients a top-notch service.
I have always argued that in the professional IFA industry there are no major economies of scale. In fact, there are diseconomies of scale.
Bigger firms struggle to integrate the various systems they have inherited from their component firms and fixing the resulting problems always seems to absorb more time and money than was intended. Creating common standards for administrators with years of having done it their way is not a recipe for happy families. As for creating common standards for advice, this is even harder.
Before the RDR, large adviser firms could add value, at least in a narrow sense. Large and ugly adviser bosses beat up large and ugly life company bosses to get more commission. That is all the value anyone ever added to an old-style national IFA or network. For the record, I do not include the execution-only operators such as Hargreaves Lansdown and Bestinvest, who certainly have added value – but they are not IFAs in the RDR meaning of the term).
Who will the bosses of big fee-based adviser firms beat up after the RDR? Their own advisers, I suggest, will be the ones who are told to become square pegs in square holes or find better holes to go to, though the discussions could be somewhat less polite.
Better administration can release more time for advisers to see clients. But this is perfectly possible for firms of half a dozen advisers. You can buy a solution for almost everything off the shelf at reasonable cost and have more flexibility than a large adviser with a bespoke administration system.
My betting is that after the RDR there will be even more available to IFAs. Pension-splitting and equity release, for example, are areas where even a medium-sized IFA firm may struggle to justify a full-time specialist, so we will probably end up with specialist firms that IFAs buy in to handle such cases.
As for fee-based IFA firms adding value by employing a tier of highly paid man-agers who do not advise clients, there are plenty of reasons to be sceptical.
Chris Gilchrist is director of Churchill Investments and editor of The IRS Report