What lessons can we learn from the events of the last 12 months?
Most executives of IFA firms say it has been a very difficult year although business picked up in the second half. The reasons behind this are clear. War in Iraq contributed to a sense of uncertainty by investors. As reform of our industry continued at a snail's pace, with FSA papers on depolarisation and the Sandler suite and the follow-up to the Pensions Green Paper, it is little wonder that our clients sat on their hands.
In the corporate arena, many companies cut their spending on employee benefit programmes when faced with increasing employment costs as a result of EU directives.
Is the IFA business model broken irreparably? In my view, the future has never looked rosier for the IFA marketplace as long as firms adopt sensible strategies. Let me highlight the reasons for my optimism.
In the pension arena – as and when we see the likely shape of the changes which are due to be implemented in April 2005 – there will be a fantastic opportunity for those who are advising at the top end of the market, as it is in this area that most advice will be needed.
All existing arrangements will require review and, in many cases, top-ups to these arrangements will probably be prudent. The advice required is likely to be add high value so there is no reason why we should not be paid for our services at premium rates.
There is little doubt that many investors will be kicking themselves for having sold at the bottom of the market or for having sat on cash as the market moved up, particularly in the last six months. Private clients generally tend to buy at the top and sell at the bottom and it is up to us as advisers to ensure they avoid this trap.
There is no substitute for having a sensible asset-allocation strategy geared towards the risk profile of the individual client and, clearly, having all your money in cash at any point is not a sensible strategy.
As confidence returns, we are likely to see more money invested in the market and, in my view, IFAs are best placed to provide clients with impartial asset-allocation advice as we can access all the relevant asset classes and have no particular axe to grind.
Traditional fund managers find it difficult to provide such a diversified approach. When we couple this with our ability to harness all our clients' investments in wrap offerings, the IFA's role in an overview capacity will become all-important to our clients.
There is then the practical point that most of our clients are under-insured, either in terms of life insurance or cover for disability or long-term care costs. With life insurance rates having improved in recent years, we should be considering whether we can improve on existing terms for our clients. They will always be grateful if you save them money.
Advice on long-term care cover is often the prelude to sensible inheritance tax planning, as it is the spectre of future care costs which has done most to dissuade people from taking action to mitigate the liability on their estates.
In the field of equity release, it is clear that more people will need to access equity in their properties to supplement their income needs. Their asset base, other than their main residence, will no doubt have been diminished by the sharp and sustained fall in markets over the last two to three years, so the equity in their property has become a much bigger part of their overall wealth.
The ability to advise in this area will be important for all advisers and I include those who specialise in the high-net-worth end of the market, where clients often have their assets tied up in illiquid assets which generate little or no income. Those with landed estates are a prime example.
There are other markets we can tap into but it is clear to me that the main issue from a strategic perspective is to ensure that your business model works within the current environment and that you are operating in areas where added value can easily be demonstrated.
What of the corporate environment? I believe that the IFA is well placed to take an increasing share of this market away from the employee benefit consultancies, which are generally keen to avoid a significant involvement with group personal pension arrangements, stemming from the fact that such schemes require rather more in the way of worksite marketing. IFAs with appropriate IT tools are well placed to fill this gap in the market.
Remuneration in a 1 per cent world has clearly hit bottom lines but even here there is the prospect that the cavalry may ride to the rescue in the form of a higher cap.
It has been a tough year but IFAs who focus on strat-egy and market sectors which are likely to be buoyant have every reason to look forward to 2004 with confidence.