Independent Financial Advisers were invented by the Financial Services Act of 1986, and arrived on the scene two years later, in 1988, when the Act was implemented.
As chance would have it, my first specialist financial agency, DMB&B Financial, arrived on the scene in the same year. As a result, I’ve spent most of the 23 years since worrying about how to market to, and communicate with, the IFA market – 22 as an agency creative director and chairman, the last one as a consultant.
But now – as of yesterday, in fact – I think we can confidently announce that this IFA-tastic era is over. IFAs will still matter, of course. But they are rapidly mattering less and less. Yesterday, I received an enquiry from a financial product provider which has focused on nothing but the IFA market since 1988. Now, they’re looking for help in developing a new direct-to-consumer proposition which will bypass the IFA market, and very likely prove more than a little irritating to the IFAs. They don’t care. They’re doing it anyway. And if even this company – I won’t name them – is now prioritising its D2C strategy over its IFA relationships, I’m happy to say that the IFA era is over.
Actually, I’m more than happy. I’m absolutely bloody delighted. As you’ve heard me say before, I am now seriously regretting the proportion of the best years of my working life that I spent concentrating on these bloody awful people. There was (indeed is) a huge lie at the heart of the IFA industry: for the huge majority of advisers, it was never about independent financial advice – it was about commission-driven selling.
Most of these people would flog anything to anyone for 5 – 7% upfront and 50 to 100 basis points annually thereafter. In the early 90s, a chap who looked like the soberest bank manager imaginable used to come round and see me with a briefcase bulging with brochures which he would spread around my desk like a conman punting fake watches: if I didn’t fancy an EIS or a VCT, how about an offshore bond? As our relationship entered its final phase he became hysterically excited about the fact that I had picked up a chunk of cash from the sale of my agency and almost literally camped out in the doorway to my office trying to persuade me to dump the proceeds into a wonderful cash-based investment that offered so much more than any boring old deposit account – yes, you guessed it, the famous AIG Enhanced Fund that caused all the trouble when it crashed and which is still the subject of various class actions by a posse of enraged celebs.
This had absolutely nothing whatever to do with financial advice, and absolutely everything to do with commission. In fact, in the heyday of Prudential’s Prudence with-profit bond, which I think paid 6 or maybe even 7% upfront to advisers, sales through IFAs were so immense that someone described the whole IFA industry as a mechanism set up in order to transfer billions of pounds a year from the pockets of Prudence Bond investors to the pockets of IFAs.
Amidst this 21-year orgy of rape and pillage there were of course IFAs who were actually in the business of giving independent financial advice, but there weren’t many – certainly nothing like enough to look back over that era with much enthusiasm.
Anyway, what’s now happened over the last couple of years is that the product providers have more or less given up on them. Certainly almost without exception they’ve given up on the idea that they can depend entirely on them for their distribution: one by one, the IFA-channel loyalists are launching initiatives using other channels, mostly D2C.
Why is this? Well, you could write a short book in answer to that question, but I think if you had to answer it in one bullet point you’d say that:
– post RDR (i.e. post December 2012) product providers won’t be able to use commission as a way of controlling their business flows through IFAs, and dealing with IFAs without commission is like dealing with an aircraft without a joystick or a ship without a rudder.
When you add to that fact a second bullet point, that:
– post RDR everyone expects the number of IFAs to fall, and, as a result, the volume of sales through that channel,
you can see why provider feel obliged to look elsewhere.
This is not a hugely elevated or admirable rationale. In fact, there’s something rather disagreeable about providers losing faith in the financial advice industry just when it may be on the brink for the first time of actually doing what it says on its tin.
But still, quite frankly, at every level, I’m absolutely thrilled to be spending a greater and greater percentage of my time on projects aiming to engage directly with consumers, and a smaller and smaller proportion on projects in which providers and advisers gang up to part them from their cash by fair means or foul.
You may say that I’m so keen to call the end of the IFA era, I’m jumping the gun. Maybe. As we all know, IFAs have proved amazingly resilient over many years in the face of many initiatives – mostly regulatory ones – intended to curb some of their nastier habits.
But this time, it’s not just the FSA – it’s the providers too. Of course few will turn their backs on the IFA channel altogether. But it’s not glad confident morning any more. Or even agreeably profitable afternoon.