Aquestion I am often asked is how I see the future IFA model developing. Answering this is not as simple as it may sound and prompts another question that needs asking first in this context. Could a tied or multi-tied adviser develop a practice that competes with the IFA of the future and, if so, will it be a threat?
Well, that would very much depend on how you position your business but it is my belief that if you are dealing with an audience who can appreciate your services and take advantage of them, they will be relatively well informed about financial products and probably in the top quartile of the UK’s population in terms of personal wealth. For these people, I think dealing with an independent adviser will prove essential.
But even that answer can be further refined depending on which product the client is buying. It seems likely that wherever you are on the personal wealth scale, commodity products are chosen by price. Cheap is still a valid recommendation if the provider has enough As or Bs in its rankings.
This means the door will always be open to develop a tied or multi-tied business model that focuses its attention on the commodity end of the market. This has not escaped the FSA’s attention – no doubt one reason for Otto Thoresen’s work. Indeed, a number of providers are investing heavily in direct operations to service this growing need, that in turn will be helped and even promoted if the generic adviser proposals are adopted. So back to the question, what will the future IFA business model look like?
I suspect the answer will be driven as much by my ideal vision of the future IFA as by market forces and in recent times I have actually found myself believing the two are compatible to an extent.
In any business, you need to have a sustainable customer base providing you with long-term revenue. Clearly, the old renewals revenue stream is not one to plan the future on. There is intense pressure on commission from providers and some consumer groups. Providers want it reduced – I will not go into the arguments and politics of that here – while consumer groups just think it has got to be bad. Whatever the rights and wrongs, there will be changes that need building into the future IFA business plan.
In this new world of wraps, fund-linked trail commission and advisory fees, you can build a business based on the sound business practice of supply – in our case advice – and demand. It is what our customers want. Those businesses that can build a customer proposition based on truly valued services delivered to agreed annual calendars via personal meetings and technology will have a sound future.
This is nothing new to the IFA world. There are plenty of extremely successful IFA businesses that have put this into practice for a number of years. The big difference is, it has now become a lot easier.
Maybe what I am saying is that it is a lot easier in the 21st Century to demonstrate that you are a professional through the support and information you provide. One reason for this is because the better informed, educated public we deal with do not just think but know they need advice.
The main reason, however, is because we can supply the level, quality and speed of information that our customers expect. Technology has enabled us to move on from the old costly, often inefficient and not particularly sophisticated administrative back-office support that depended on paper and the Post Office.
So, I am not saying anything new. Future IFA practices should be businesses based on advice and fees, probably in a partnership structure similar to an accountant or solicitor practice, bringing new blood in to eventually succeed the current management and allow the senior partners to retire gracefully.
That is my ideal and, probably, the future reality.
Simon Hudson is chief executive of Tenet Group.