Today's financial marketplace offers more choice in terms of products and distribution channels than ever before. Increasingly, IFAs have to convince discerning con su mers to choose them rather than their competitors.
At no point in their exist ence have IFAs faced so much competition from different oper ators. The list is ext ensive and includes:
Tied agents of big product providers.
Franchisees attached to companies such as Allied Dunbar.
The internet, which has introduced concepts such as electronic fund supermarkets.
A Government and regulator seemingly intent on changing the polarisation regime and creating some type of unknown “third option”.
Aifa director general Paul Smee says: “There are several layers of potential threat to the IFA community. The two I would identify are personal wealth managers, who are creeping into previously IFA-controlled territory, and the internet but I believe that IFAs can live with that.”
Yet despite these numerous challenges from other quarters, the prevailing voice seems to be that the biggest threats to IFAs are themselves.
Unless IFAs begin to sell themselves to the public and prove the value of independent advice, they will be left behind as the industry moves forward at a rapid pace.
Smee says: “All the evidence we have seen over the last decade is that people like independent advice as a rule.”
Many in the industry are convinced that consumers appreciate the concept of independent adv ice. What is necessary, they say, is for IFAs to use this as their trump card by emphasising the difference between themselves and tied agents or other salespeople who can only speak about one company's line of products.
Sofa spokesman Robert Reid says: “The biggest threat to IFAs is IFAs themselves. They have to construct a strategy to convince consumers why they should turn to them. They need a very clear proposition as to why someone uses them.”
Autif public relations manager Clare Arber says: “If IFAs cannot keep up with change, they will not survive.”
DBS chief executive Tony Kempster says: “The demand for what IFAs do at the mom ent is much more than what IFAs can offer. The biggest difficulty they have is finding the time to deal with all the clients who want independent advice.”
The internet will undoubtedly have major ramifications on the financial services ind ustry and how consumers get access to financial information. But whether it will be a channel for substantial amo unts of bus iness transactions is far from clear.
Some commentators be lieve that, while consumers will use the internet as a source of information, they will walk away more overwhelmed than before they logged on. The likely result is that they will need independent advice to make sense of it all.
Kempster says: “We do not view the internet as being a threat to the IFA community. It is clearly much more of an opportunity than a threat.”
ABI spokesman Malcolm Tarling believes access to information on the internet will empower but also con-fuse consumers. He says: “The need to get independent financial advice has clearly never been greater.”
The ability of tied agents and franchisees to advise on products is limited by the fact they can only talk about one company's products. This is thought to be one of the reasons behind the decision by the FSA and Government to shake up the pol ar isation rules and allow direct providers more flexibility.
IFAs do not seem concer ned by the threat of direct pro viders. They think they serve a different need and that, at the end of the day, independent advice is far better anyhow.
Bankhall head of business operations Tony Murrell says: “An IFA is head and shoulders above the rest of the marketplace. The IFAs we have today are very different animals than they were 10 years ago. Their only challenge is not being able to keep up with changes in the industry.”
Those who feel that IFAs are under threat seem to be a minority.
Scottish Equitable IFA training manager Peter Wil liams believes the two threats IFAs face are regulatory changes such as the introduction of multi-ties and rapid advances in technology.
He says: “IFAs have had the advantage in the past of being distinct from the direct product provider. Changes in the regulatory structure may eliminate this. Saying that, it could serve to galvanise the IFA community into becoming even stronger.”
NPI director of corporate pensions David Tildesley says: “The challenges facing IFAs are the same as we as providers face – the push for margins.”
He believes that, in the 1 per cent world created by stakeholder, the drive to make ends meet is continually bec oming tougher. For IFAs to survive, they will have to begin charging fees – something many of them may be loathe to do.
There is no doubt there are changes coming in the days ahead. They may be Govern ment-originated or may be natural developments in the industry. People have been predicting the downfall of IFAs for 14 years when polarisation was introduced but they have proven to be a very adaptable breed.
Tarling says: “The IFA sector faces challenges from a num ber of sources. Even if numbers of firms drop off, fewer IFAs do not necessarily mean less choice. The market is changing and IFAs will have to adapt or they will not survive.”