The FSA review of retail distribution is well under way and its findings are likely to have a significant bearing on the development of the IFA sector. At Aegon, we believe that a financially strong, well-managed IFA sector should form an essential feature of the distribution landscape in the future.
While the existing system serves some sectors of the population extremely well, there is scope to improve the current IFA model to enable the industry to reach more customers and enhance the service we provide.
To tap into IFA opinion as the review unfolds, Aegon has commissioned quarterly research report, The IFA Insights survey. The aim has been to provide a snapshot of IFA views on some of the key issues that the FSA review will address. The research has painted a picture of an IFA profession that is very clear about its role in helping people develop a financial plan for life. However, it has also highlighted some concerns and some areas where there is scope for IFAs to improve the way they work.
Reputation is a critical factor. IFAs are very keen to encourage a greater understanding of their independent professional status. Fifty-five per cent welcomed the FSA review as an opportunity for IFAs to enhance their professional status and reputation.
Asked which measures would encourage people to seek more advice, greater understanding of the professional status of IFAs was ranked most important ahead of ideas such as increasing financial education in schools.
At the same time, lack of public trust in the industry was seen as one of the biggest threats to the industry.
When IFAs were asked what factors might encourage people to see professional advice as a service worth paying for, a higher level of activity from industry bodies to improve the reputation of advisers was ranked most useful.
But is this a straightforward question of better communication or should we be looking deeper for additional ways to improve the reputation of the sector?
In response to the same question, 54 per cent felt that encouraging advisers to be confident and upfront about the cost of advice would encourage people to view advice as a service worth paying for.
In a separate question, which asked IFAs about their views on some potential outcomes of the FSA review, 85 per cent said they would be satisfied with a common level of commission between providers, which would prevent the perception of suspicion of provider bias. This suggests that IFAs are very open to new ways of working and are aware of how this might also impact positively on reputational issues. This augurs well as the FSA review unfolds.
At the same time, however, there was an overwhelming consensus that an outright ban on commission would not be an appropriate way forward. The majority of IFAs agreed that fees work better for those with more to invest while commission-based remuneration is best for smaller savers. Nevertheless, almost half said they would like to move to a fee-based structure but their business strategy depends on regular commission payments.
The FSA must look at ways of making it easy for these IFAs to make this move if that is their desired objective.
The majority of IFAs say that they are struggling to attract new clients in a systematic way. At the moment, the vast majority of new clients come from word of mouth and personal recommendations, which underlines the importance trust and reputation, and many IFAs say they do not have the time to devote to bringing in new clients.
Looking to the future, this must be something for the IFA industry bodies to consider in terms of the support they give to their members or it may be an opportunity for a new strand of professional development.
It may raise questions, however, as to whether the existing IFA model alone will enable the long-term savings industry to achieve its goal of reaching new customers and addressing the UK’s savings and protection gaps and we need to consider this further.
Graham Dumble is director of risk and regulation at Aegon UK.