As many as one in seven IFAs are planning to leave the financial advice industry as a result of the implementation of the retail distribution review
(RDR) in 2012. According to a recent poll of more than 500 advisers by JP Morgan Asset Management, while a clear majority of 84 per cent intend to remain as independent financial advisers, 2 per cent plan to become tied advisers and 14 per cent are eyeing the exit.
Advisers have until December 2012 to sit the necessary exams, meet qualification standards and update their remuneration models under the proposed regulations. However, the results of the JP Morgan Asset Management poll suggest 14 per cent of advisers feel they are either not equipped or prepared to meet these stipulations.
As it happens, as part of its wider efforts to help IFAs meet the standards required by the RDR, the firm has been focusing on exam technique – particularly with regard to the investment-oriented J06 Investment Principles, Markets and Environment paper, which has proved a real thorn in the side for many advisers.
It’s a tough market in which to sell your business but advisers should not be fooled into thinking that valuations will go up in the next few years
J.P. Morgan Asset Management head of UK Academy sales Stuart Podmore says: “Professional qualifications are clearly key in ensuring compliance with the RDR.”
Podmore says that, anecdotally, he has found few advisers fail the J06 paper spectacularly – with most only failing by a few percentage points. “Inmany cases, it is almost certainly not a failure of knowledge, but a failure of technique,” he explains. “For example, advisers can be thrown by a difficult early question, spend too long answering it and neglect easier questions further into the paper.”
Meanwhile, those IFAs who are looking to leave the industry need to start working on an exit strategy now if they want to realise the value of theirbusinesses.
Jasper Berens, head of retail distribution at J P Morgan Asset Management UK, says: “In the short term, such advisers need to the think about the best time to exit. It’s a tough market in which to sell your business at present but advisers shouldn’t be fooled into thinking that valuations will go up in the next few years. In fact, in the rush to sell before 2012, the market could become flooded.”
According to In Shifting Sands, a report by Ernst & Young published in February last year, the IFA sector is expected to contract by 25 per cent by 2013. Last year, JP Morgan Asset Management produced its own report, Reaping Rewards: assessing, optimising and releasing the value of afinancial advisory business, which is designed to offer advisers a chance to maximise the value of their business in order to best prepare should the time come to sell.
The full report can be downloaded at www.jpmorganassetmanagement. co.uk/Adviser/ AdviserInsights/Reaping Rewards.
Berens says: “Financial advisory firms face massive challenges but the need among UK consumers for expert, impartial financial advice is greater than ever. Advisers who develop well-managed businesses with a clear proposition and stable revenue streams are potentially building a highly valuable asset for themselves. Furthermore, the attributes that make businesses more attractive to acquirers are also those that make it more able to withstand tough market conditions.”
While adviser numbers will undoubtedly fall post-RDR – inevitably having a knock-on effect on the remaining advisers and investors alike – Berens
does not believe a decrease in the number of IFAs will mean a shortage of advice.
“IFA numbers have been decreasing for years but there is no statistical analysis to indicate this has had an effect on the number of people seeking advice,” he says. “Indeed, fewer advisers in tandem with an increasing use of fund platforms will make it harder to keep underperforming funds and fund groups on life support, which is a good thing, both for end investors and advisers.”