We work in a regulatory landscape transformed by RDR, and as with all such changes for some it’s too much change and for others it’s an opportunity. There are going to be ways to capitalise on these changes and this post will explore what opportunities lie ahead for IFAs in the next five years.
You already know a lot of advisers left the sector in the run up to RDR leaving the rest of us with far less competition than we’ve previously faced. Attracting clients for remaining IFA firms is therefore less of a challenge than previously faced – good news; in many ways RDR has acted to ‘correct’ the market that existed since the 1980s.
Before the first regulations came into effect in 1988, advice could be offered by unqualified advisors, enthusiastic amateurs and aggressive salesmen. Progressively over two decades the sector has become more professional and regulated, and as such the onus has fallen to firms to provide ever greater value and service.
Firms with uniform charging structures and advisors that give consistent advice benefit and these systems are now crucial in attracting new, talented advisors to your firm. In these changing times, you need a robust client proposition and good support and back office systems.
Being able to provide an advisor with sufficient support from paraplanners, an investment team and regulation combined with charging structure which gives customers confidence to invest is the way to attract top talent following RDR.
Many advisors prefer to stay within networks as opposed to joining firms. Prior to RDR, this brought for many flexibility , simplicity, egulatory comfort and reduced costs.
Networks in the coming years will be increasingly vulnerable, especially when it comes to issues of legal compliance; with a limited hands on support structure throughout the network it creates the possibility of one or more IFAs breaking compliance - which in turn would have dire consequences for all the network’s members.
This means that while networks may have been a cheaper and simpler way of trading in the past, there are serious questions about their long term viability today.
In the coming years there will simply be no alternative to investing in support structures for your IFAs, the industry has moved on and the regulators now demand it.
A further dilemma faces IFAs from April 2016 onwards, not only will there no longer be any new trail commission but legacy commissions are also under threat.
Insurers post RDR will withdraw legacy commission if an IFA advises a client in a way that could prove to be a disturbance to the previous policy. This could be argued to be a great incentive for IFAs to sit on their hands and do nothing, after all, why jeopardise the few streams of passive income that are left? The problem this poses for IFAs is that the IFA does not provide ongoing advice they are unlikely to retain their clients in the long term. Insurance companies have started contacting client and asking questions “when was the last time you spoke to your IFA?” If the answer is more than 2 years in some cases they will shut off renewal commissions and remove the IFA’s servicing rights.
This once again means that IFA businesses must be based purely in a strong and reliable service proposition to the client, delivery of service to the client is now the absolute priority and the product provider is simply the delivery mechanism for the service.
If larger organisations with strong service infrastructures are the future of the sector, then it is highly likely that banks will return to the market as smaller IFAs depart. A gap in the market and the means to fill it makes this a no brainer for many high street banks.
In addition to this, the growing advice gap that’s emerging will probably result in cheap online solutions for lower income investors who cannot afford face to face advice.
The emerging profession that IFAs operate in will become focused on a smaller number of higher worth individuals.
Technology is going to shape the sector in other ways too. Finding investment opportunities using technology and access to online data will inevitably make the process of research quicker and therefore cheaper.
A firm that can shave hours off the research process stands to save thousands of pounds per investment, but it does require up front investment in systems and training in order to achieve this - the kind of expenditure that many smaller firms can ill afford.
Bradbury Hamilton has worked very hard to future proof itself against the changes that are shaping the IFA sector and can offer a lifeline to any firms that are finding the process hard.
If the future for your firm is one of seemingly insurmountable challenges, it might be possible to come under Bradbury Hamilton’s wing and take advantage of the support and systems we can offer.
If you’d like to future proof your firm as well contact me today for an informal chat about how we can work together in the post RDR world.