“In the event of complete depolarisation, we would like you to know that we have the market-leading multi-tie proposition. Talk to us first.”
If you have not heard these words, or similar, you are probably not an active IFA and the wisdom or, indeed, sustainability of independence has not been taxing you since the issue of CP80.
The pendulum has swung back and forth in the last 10 months but now it seems to be settling. The FSA seems intent on creating the best possible future for consumers and, if recent comments from regulatory staff are representative, independence is now appreciated and IFAs are no longer perceived as commission-hungry predators.
There is also a growing acceptance that regulation has contributed to the soaring cost of advice and the commensurate reduction in the population to whom it is being delivered. So what of the future? We believe it will have three key components:
Independent advice will broadly retain its current form, with a relaxation of the drive towards a 1 per cent world.
An encouragement to re-establish distribution focused on lower earners, who have been disenfranchised with the demise of the majority of direct salesforces. There will be access to a broader range of Catmarked products, encouraging the target group to save while ensuring better choice.
Compulsory savings for all, initially through employer contributions into largely empty stakeholder shells that proliferate the shelves of major providers. Offering tax breaks for saving must be more cost-effective than state provision in the long term.
What does this mean for IFAs? First, commit to nothing at this stage. Second, take an honest look at your client base and ask these questions. Are the majority of your clients high-net-worth or mass-affluent? Are they largely corporate? Do you rely heavily on professional introducers? Do you or your clients value your independence beyond anything else? Can your business survive without external support? Do your life and pension sales follow on the back of your mortgage or general insurance work?
If your answer to any of the first four questions is yes, then far from considering multi-ties, your energies would best be deployed joining an organisation lobbying regulators, the Treasury and providers for meaningful support, a reduction in documentation, abolition of VAT on fees and an industrywide agreement on the use of technology that gives you benefits instead of passing providers' work to you.
But if you answer no to the first four and yes to five and six, multi-ties may afford you improved support. Your clients may not notice the difference and there is growing acceptance that any advice is better than no advice in some segments of the population. This may be your only chance of survival.
How do you choose? Probably through a process of elimination. Which providers will survive in the long term? Who is offering a package you feel comfortable selling and which covers most of your needs? You are likely to shortlist less than eight and can then focus on the offer. Do not just think of the financials but also the marketing, IT support and degree to which you will run your business.
Whatever the outcome of current reviews, the business model will change. There will be fewer providers and you need to select them soon and build deep relationships. A highly effective support infrastructure will be essential and an e-enabled sales/service proposition between customer/IFA/provider will be the only profitable way to trade. The need for accurate and timely customer information becomes critical – those that supply this will win.
Pauline Stoffberg is executive consultant at Cap Gemini Ernst & Young