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Tom Baigrie on protection

So, for the first time, the judges of the Money Marketing awards decided to present the IFA of the Year award to a specialist protection adviser. I reckon I know why they felt able to make that brave step and why similar businesses may win many more such awards in the future.

You see, in the past, the key definer of an IFA’s success was the quality of the relationship they had with their clients. Those who maintained a regular service to a big client base were the most successful. This suited those with strong personalities and plenty of charisma. It was this that made the consolidation of small IFA firms into national businesses so difficult and led to the rise of the networks.

But as regulation has developed, so the main requirements of practitioners have shifted from the personal to the technical. Only the few members of the old school who were technically very sound survive as independent businesses today. Along with regulation and the shattering of trust in financial advice generally has come a far more cynical, suspicious and savvy consumer – one inclined to see charisma as the mark of a salesman and to actively seek out a technician. But the trouble with technicians is that they cost a lot and are not so good at getting most clients to make decisions in a fashion profitable to their employer.

The solution best suited to take advantage of this shift in client behaviour seems obvious to me. It is a bunch of charismatic client-facers supported by a range of specialists on whose knowledge and products they draw to provide solutions that stand the harsh test of regulatory hindsight. Advertising agencies have been doing it for years, with account handlers fronting the creatives. Accountants, too, have had tax managers supporting the partners.

But getting historically successful IFAs to move into a world where their clients depend on the advice of others in the firm as well as their own is a long hard road.

The alternative is to offer consumers a business that just does one thing on a scale that allows low cost and with a focus that allows real expertise. It is noticeable that most of these specialists thrive while many of the generalists do not. However, the trouble with such firms is that clients eventually need lots of them to address the whole gamut of their needs, so the once all-powerful adviser-client relationship is now a weak thing that survives only as long as a better deal does not come along.

Thus, specialist houses, except in the most highly technical areas, are always vulnerable to a good relationship merchant, provided his deals stack up. The only way to achieve that is through general practitioner advisers (multi-tied or independent, dependent on the target market) who never actually give advice themselves but pass on the technical achievements of others.

In truth, though, the banks discovered this long ago and, having wasted vast amounts of capital failing, they, unlike IFAs, have yet more to deploy and have nowadays almost succeeded in making this generalist/specialist approach work for the bottom to mid-market.

As Chancellor Gordon Brown is doing his best to put the whole country into that zone, there may not be much room for the rest of us.

Get yourself consolidated into a really well-run IFA, either as a specialist or client account handler, and your future will be bright. Finding a well-run IFA is not easy though, so happy hunting.

Tom Baigrie is managing director of LifeSearch

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