Being an IFA is not as much fun as it used to be if you
are a one-man band or part of a smaller firm. For the
84 per cent of all IFA firms that have fewer than five advisers, the bad news is that the situation is only going to get worse as a result of the dramatic changes our industry is undergoing.
However good your client base is, if you are a smaller IFA, your position is increasingly untenable. The myriad
of complex financial products now available means that your breadth of product knowledge needs to be greater than ever before, not to mention your financial, regulatory and capital resources.
To survive and succeed, an IFA needs to have significant financial muscle. Small IFA firms will never
fly while they adopt the ostrich approach to this problem. Instead, they will be in danger of becoming the dodos of the financial services industry. If you disagree, then
I suggest you revisit the implications of N2, reform of polarisation and the Sandler review for starters.
So, what are your options? You could consider joining a network. However, you would need to consider whether the network's promises will be delivered. You might want to ask some of the network's members for their experience on the commitments they received. Even if you do not agree with me today, if you join and then later decide to leave, I am confident you will know what I mean.
You could, as Millfield did, become one of a handful of independent IFA companies that have successfully raised funds on the equity markets to build their business. The £21.4m before expenses that we raised to fund development has enabled us to build a strong infrastructure, attract and retain high-calibre IFAs and employees, and have sufficient regulatory capital, marketing resources and customer-facing technology.
However, the evidence would suggest that the
majority of those companies which have listed had a substantial business and a turnover in the millions. Therefore, anyone considering this route in the short
term needs to take account of the current conditions for capital-raising. Because of these conditions, so far this year, only eight companies have floated on the London Stock Exchange's official list, raising a total of £7.39bn,
a figure boosted by the £3.99bn flotation of mobile phone giant Orange earlier in the year. In the previous year;
120 new issues raised £10.621bn.
Of course, there is always the option of admitting defeat and leaving the industry. Unless you had planned to retire now, though, this would be a huge loss to your clients and the industry. Even if you do leave, there are professional indemnity implications to consider.
There are a number of important industry issues
still being reviewed which are creating an air of uncertainty. One thing is for sure – the industry you operate in is undergoing dramatic change. Unless your business evolves with it, the wealth you have created for yourself and your associated lifestyle will diminish significantly.
The Government's own agenda will further emphasise the need to be able to offer a comprehensive financial planning service to clients as it continues to raise individuals' awareness of the need to provide for their own financial future.
With margins being squeezed increasingly, you need to look for opportunities to increase your productivity across a broader range of financial products. Economies of scale, marketing and business support are the key to success. By removing some of the administrative constraints by investing in advanced technology, you will be able to spend more time with clients and less time ploughing through the associated paperwork.
By the year 2005, there will be approximately five million people living in the UK with aggregate wealth of £2trn. If you want to have a slice of it, you simply have to face the fact that, whatever option you choose, you can not afford to stand still. You have to act now to secure the value of your business.
Paul Tebbutt is chief executive of the Millfield Group