It is not a subject any of us likes to contemplate. Indeed, most of us do everything in our power to avoid confronting it. Are those close to us being unfaithful? He may be coming home at 1am smelling of perfume with an inane grin on his face but the obvious answer for many partners is that he has been locked in the pub with a perfume salesman who tells amusing jokes. Self-deception rules.
Commercially, the question of client infidelity is one that many IFAs would be wise to confront quickly, particularly with CP121 likely to bring a massive shake-up in client relationships.
I believe that most IFAs seriously overestimate the attachment that their clients have to them. There are two reasons for this.
First, the majority of conversations an IFA has with his client base are with the 20 per cent who use him the most and from whom he derives most of his income. This subset have a clearer grasp of the benefits of using an IFA. They are also likely to lead an IFA into believing that the level of comprehension across his whole client base is much higher than it actually is.
The real question is what level of understanding exists in the remaining 80 per cent of clients? This group are less likely to receive regular servicing and have the onus placed on them by the IFA to initiate renewed contact.
Quality research has decided that over 30 per cent of IFA clients do not have even a rudimentary knowledge of an IFA's function. So how will they know whether ringing their IFA is worthwhile? If your clients do not know over what area your advice extends, how are they going to know when to contact you?
Second, the financial services market is extremely wide and few IFAs pretend to cover everything. In essence, a certain amount of infidelity is accepted and even encouraged. Fewer IFAs are dealing in general insurance and, with the notable exceptions of Intelligent Finance and Cater Allen, IFAs rarely introduce their clients to banking and even fewer are recommending to building societies.
IFAs may be making a reasonable income out of the highly remunerative, if labour intensive, sectors of financial planning and pensions but are surrendering vast tracts of the market to those who are currently demonstrating far more sophistication both in their marketing and IT solutions to our client base.
In the 1 per cent world, IFAs will have to contemplate whether they can afford to keep surrendering ground. More deals with smaller margins will become the order of the day and that makes the 80 per cent far more important. While clients may value the touchy-feely advice that many IFAs can deliver, they are equally impressed by a level of service and sophistication that the average IFA cannot even aspire to. How many of your clients are also clients of Hargreaves Lansdown?
The point is fast coming where the majority of financial services purchases made by IFA clients are being made outside the relationship. This puts IFAs at a crossroads. Do they specialise and embrace the concept of niche marketing or do they attempt to continue to offer a generalised service without the capital to compete with the sophisticated marketing and IT of the bigger players? No wonder the thinking part of the industry is discussing the consolidation of the IFA sector. The challenge would be to construct a business that had the sophistication of the bigger player but the hands-on feel of the smaller IFA.
You may think it is OK to allow your partner to flirt with everyone at the party because they always get into your car at the end of the evening but are you sure their diary is not full of phone numbers which they will use when your attention is distracted? There will come the day when you discover that they have already left the party with someone else.
Garry Heath is chairman of Impartial