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Submerge yourself in emerging wealth

IFAs will not need to be reminded of the potential impact of stakeholder pensions this year. For those expecting to be active in this marketplace, the next eight months will be fraught with activity and no doubt commensurate levels of remuneration.

For those who are less fortunate, the 2001 business plan will need to look at alternative areas of advice and potential new markets which have previously been overlooked.

In looking at new markets, it is as well to consider those that are likely to have a longer lifespan since they will provide the IFA with the longer-term rewards that should be expected from a policy shift.

IFAs will need to be conscious of the difference between commodity and advisory products. Commodity products are those such as Isas – and, in the past, Peps – which have become something purchased by the client rather than arranged by an IFA following a consultation process. Some 20 years ago, it would be inconceivable to imagine clients purchasing equity-based investment products as a matter of course, year in year out, using off-the-page advertisements and internet sites. In the 21st Century, we have seen this become a reality.

There are threats for IFAs in that similar products may go down the same route in the future.

By contrast, advisory products offer the IFA scope to provide added value to the client&#39s purchasing process. Advisory products are less likely to be purchased off the page or over the web. Generally being more difficult areas, they are also less open to competition with other IFAs.

So the question becomes one of which added-value area should IFAs look at next?

Established IFAs will have no shortage of client referrals either from existing clients or professional introducers and perhaps this is where the key lies to the next target market.

While the last 20 years have seen an erosion of the potential earnings from pensions through the imposition of salary caps and reduced maximum funding rates, we have seen an increase in the market of capital investment during the same period.

Given the amount of press coverage in the last 12 months relating to growing personal wealth, this is an area which is going to expand rapidly over the next five to 10 years. Some estimates are suggesting – not unreasonably – that the amount of wealth owned by individuals will increase at 19 per cent a year compound.

The number of millionaires is also forecast to grow at the same rate and other figures indicate that an emerging mass affluent market will provide millions of investors with £50,000 or more in investable cash.

IFAs who are serious about maximising the potential of this market should hone their marketing skills accordingly and be aware of the different requirements presented by this type of investor.

An awareness of the opportunities provided by the internet and being able to communicate with clients by email if required are essential to earn the respect of the emerging high-net-worth investor.

A knowledge of the different sources of investment information available on the internet and being able to direct clients to useful and interesting financial websites is a good way to begin.

Earning the trust and respect of this type of investor will be crucial to forging a successful long-term relationship. IFAs should also make the most of relationship marketing and emphasise the importance of regular financial assessments.

A high-net-worth investor who is quickly accruing wealth should recognise that this is essential to maintain a balanced and efficient investment portfolio and that taking financial advice should become as integral a part of his lifestyle as having his car serviced or going to the dentist.

The challenge for IFAs is to identify high-net-worth investors among their existing client bank and, more important, build relationships with new clients of this type.

One effective way is to identify them at an early stage, possibly before they achieve high-net-worth status. Look at those who are being consistently rewarded at work or for those who have successfully started up a business in recent years. These may well be the high-net-worth investors of the future.

Consider more mature professionals – do they receive share options as part of their remuneration package? This is increasingly common and, if the shares are in a technology or telecommunications company, the value may well have risen dramatically in the last couple of years. What plans do they have to consolidate these gains and invest for the future?

If the avenue of pension planning is denied to the IFA, then the area of personal financial planning must be a good alternative.

Along with the obvious needs of individual protection in the event of death, disability, critical illness or medical expense, IFAs should be looking at the areas of savings and, more interestingly, the capital investment market.

It is this final market where we have seen most marketing activity from private banks, retail banks and other institutions keen to jump on the bandwagon of the emerging wealth story.

If IFAs are to compete in this arena, they will need to consider carefully how they can add value in ways that other advisory services are unable to compete with. It is in this regard that the areas of estate planning, tax mitigation and, in particular, inheritance tax planning will come to the fore.

With the increase in wealth there will be increased demand for tax-efficient investment schemes and it is predicted that many investment decisions will be driven by tax-efficiency. In this area, IFAs will have at least some knowledge from sitting the FPC examinations.

International companies have long, established track records in the fields of estate planning, tax planning and inheritance tax planning. IFAs could turn to these companies to receive support in these areas, including training, seminars and workshops, with a view to increasing their knowledge and comfort levels in these fields.

Not only will this allow IFAs to secure their own revenue streams in the future but will also give them the potential to increase revenue since the burden of administration on investment schemes is significantly lower than that on pension planning vehicles.


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