So it was that last Friday I criss-crossed the City and the West End, attending a range of long-standing appoint-ments with IFAs, fund managers and life offices, several of whom I had been promising to see for months.
One of my first meetings was with Aifa chief executive Chris Cummings. I hope to write up the result of that interview some time in the next week or two.
What was apposite about that meeting, however, is that it came on the day that the FSA published its rules on adviser-charging. Indeed, the announcement came as we sat in Chris Cumming’s office, with the tape machine running.
Later that afternoon, I went to Bestinvest’s offices near Hyde Park to see how they run their operation there, mainly in order to glean any insights that might be useful in future columns about how IFAs can best respond to the demands likely to be placed on them by the introduction of RDR in 2012.
I will return to the Bestinvest meeting in a minute. But one of the interesting things about my time with Chris was his candid admission that earlier predictions of an IFA industry being wiped out by the RDR are likely to be wide of the mark.
He cited surveys showing that from an initial estimate of up to 20 per cent of IFAs leaving the sector in 2012, updated research suggests that this had fallen to between five and 10 per cent. In other words, having taken a long, cool look at the various aspects of RDR, many IFAs are starting to think not in terms of shutting up shop but calculating how best to survive.
Chris Cummings’ own estimates are borne out by the FSA-commissioned study by Oxera, published within the document on adviser charging last week. Oxera suggests the main implication of the RDR will be that up to a quarter of firms close in their current form. This change will be largely if not wholly attributable to the provisions of the RDR.
However, that will not spell the end of IFAs as such. Oxera’s research found that the exodus will apply most strongly to practitioners belonging to small firms operating in the market. The most striking finding is that up to half of firms with revenues under £50,000 are either “very likely” or “likely” to close or sell.
But there will also be significant consolidation, as a result of which, it argues that even assuming no new entrants into the IFA community or growth among surviving firms, adviser numbers will drop by “just” 11 per cent.
Oxera says client numbers will also fall by a similar amount while IFA firms’ revenues may drop by up to 9 per cent, implying that the less affluent clients – many of whom use IFAs less often or contribute lower earnings to an IFA business anyway – may be forced to seek alternatives to independent advice.
Of course, these are all predictions, we have no idea of the long-term accuracy of these figures. But what it suggests is that independent advice will continue to be seen as important by the vast majority of existing IFA clients – and their advisers. That said, the overall structure of the industry will change.
On a number of IFA forums I attend – without contributing, naturally – this process of consolidation has been presented as a disaster. I find it hard to see things that way. Many small IFAs do a fantastic job for their clients and manage to put food on the table by running an operation out of a spare bedroom but increasingly, this is not what the future of independent advice is all about.
Which brings me to Bestinvest. Later on last Friday afternoon, I went to see them at their offices in Mayfair. It would be fair to say that Bestinvest is wildly different from the majority of IFA businesses, both in terms of its business model – which relies on recurring investment-based trail income – and also in the way its clients are serviced.
I have spoken about this before but it is worth repeating – if you are a Bestinvest client, even a “long-forgotten” one with a few thousand quid tucked away in a dimly remembered Isa, you will still receive regular six-monthly updates as to how your small portfolio is faring. Logging in online allows you to access real-time information on your investments as well as their underlying geographic and sector spread.
Yes, I know that many IFAs already offer a key element of Bestinvest’s own client proposition, including risk-rated portfolios designed to deliver both income and growth. What is striking about it is the sheer seamless professionalism of the service on offer – and no, I am not a client of the company.
I have said this before but in the coming months and years, IFAs will increasingly need to consider how best to deliver at least an approximation of such service to their own clients. In the New World, small is no longer beautiful, it simply will not cut the mustard with your savvier clients. What are you doing to redress that?
Nic Cicutti can be contacted at firstname.lastname@example.org