I have heard of instances recently where existing IFA firms have simply added the term “wealth management” to their description. Handed the “independent” label in the RDR, some IFAs think they can really strut their stuff.
I have to sound a note of caution – wealth management is now the fashion, so it must be dangerous. For proof, consider that some Barclays’ branches have recently carried all-over ads for Barclays as wealth managers.
Why should high-street banks be on a mission to destroy the cachet and perceived upmarket values of wealth management?
By definition, this cannot be a mass market product nor even a mass affluent product or service. Every marketer knows that virtually nobody defines themselves as wealthy, even millionaires, who always know someone with a bigger villa and yacht whom they see as really wealthy.
Wealth is the ideal word to use for a service intended to appear head and shoulders above the crowd. No longer.
Why should we worry about gimmicky marketing and semantics? Because the history of the industry tells us that is a good indicator of what is about to go wrong, either spectacularly or dismally.
In practice, the banks’ wealth management divisions have not been independent as defined by the FSA. They have sold clients lots of bank products, especially structured products, where the banks’ provider profits are invisible to the investor, even if the transaction costs are transparent – and this could, I suspect, be quite a large if, at least historically.
If the banks reckon they cannot get away with independence for their wealth management divisions – and they may have thrown in the towel on this issue – then the next best thing would be to use it as a label for an upmarket restricted advice proposition.
This would make a lot of sense for them, since managing delivery of a restricted advice proposition is a piece of cake (and potentially far more profitable) compared with managing a wholeof-market independent proposition.
So turn the clock forward a couple of years and imagine every high-street bank is touting its restricted advice proposition as wealth management. Simplified advice will be the gruel on offer downstairs in the branches for those who do not ask for more.
As an IFA, do you want to position your firm so you are seen in the same bracket as these dumbed-down dinosaurs?
I find it odd that having won the painful battle over independence, which really is the gold standard in the RDR proposals, some IFAs now seem keen to relegate it to a footnote.
If I am right, there will not actually be many IFA firms after 2012 – my bet is that the IFA consolidator firms will try to run restricted and independent advice propositions in parallel, with their primary offering being restricted.
I think the CPMA may have its work cut out with firms that pretend to offer independent advice but, in fact, only offer it to a tiny minority of clients.
I hope the CPMA is prepared to use its hobnailed boots on them and ensure that the IFA label is only used by firms that really do make that their primary offering.
As for genuine wealth management, while the really wealthy may pay trusted advisers fat retainers, they will never pay an annual 1 per cent for advice. They will, as they always have, prefer to be fleeced gently through transactional charges.
Chris Gilchrist is director of Churchill Investments and editor of The IRS Report