Fear and Loathing
For independent financial advisers (IFAs) in the UK, the credit crunch, or the global financial crisis as we must now call it, is not the greatest challenge facing their businesses.
According to research carried out by CoreData Research UK in September, more IFAs see regulatory reforms endangering the position of IFAs as a greater challenge than the current state of the markets.
In fact, 28% put regulation as their greatest challenge, ahead of 25% who opted for investment market conditions. The margin may be narrow, but it illustrates the fears in the IFA community over the direction of the Financial Service Authority’s Retail Distribution Review (RDR).
In the same research, CoreData found that IFAs were more concerned about the state of the UK property market than they were with the stock market and for almost half of those questioned, the credit crunch would not make them more or less likely to adopt a wrap platform.
It is interesting, but not surprising, that the property market is seen as more important than the stock markets.
After all, stock markets can bounce back relatively quickly, whereas the last property market slump in the UK lasted from around 1989 to 1994.
And the property boom since then has driven consumer spending, so IFAs naturally are fearful of the effects of property market correction. But it is the regulatory threat to IFAs that is the big unknown at present.
In its original form, the RDR challenged the business models of many advisers, as it sought to make IFAs far more independent of remuneration earned from product provider for the sale of their products.
Following extensive consultation, the next stage of the RDR is due to be revealed towards the end of the year and it is possible that the credit crunch could make it even more of a problem for IFAs.
The nightmare scenario for IFAs is that the RDR weakens their position, while strengthening the hand of tied agents and sales staff employed by the big banks.
As the banks have been partly nationalised, it could be that the government will want to make it easier for them to shift financial products, so this outcome looks quite possible.
IFAs are known for their resilience and adaptability to changing circumstances.
But the RDR could present them with a choice of becoming a fee-paid adviser to HNW clients or dropping their ‘independent’ tag if they continue to work on a commission basis, as many do. It could be a big ‘if’, but if the credit crunch pushes the thinking behind the RDR towards the banks, then IFAs may find that their fears of the regulatory threat to their status are justified.
One Comment on “Fear and Loathing”
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Iain Wishart says:
What an excellent well-timed article. The original hope for well-qualified UK IFAs is that RDR would move IFAs into the centre ground for financial planning and advice – whilst showing up UK banks for what they are – sellers of their own poor value for money products (not planners and not advisers and not independent/whole of market).
IFAs are improving their qualifications and image all of the time. Now just 4% of complaints to the UK Financial Ombudsman Service are about advisers, while the big six financial firms account for half of all disputes.
Despite the fact that it proven that it is the Big Banks that are causing consumers all of the grief, I fear RDR will be watered down very much in the Big Banks’ favour as they are in effect part owned by the UK Government (who want their money back).
I expect RDR to be a total political farce that flies in direct contradiction to what is required and what best serves consumers.