Julian Knight: IFAs, chasing high net worth dream, create advice gap

I have had an email from a firm that specialises in valuing independent financial advice businesses for sale.

It said that times seem to be good in the trade, mainly because many small-scale advice companies and individual independent financial advisers (IFAs) are looking to get out sharpish. The reason? The impending ban on commission sales. Many of these firms see that it’s going to be a lot harder to make their usual pile of cash once the trade in commissions is lost.

Instead of getting out of the trade, though, quite a few other firms of IFAs seem to be morphing into self-styled wealth management specialists –basically, a posh IFA. I have lost count of the number of approaches I have had in recent months from these new wealth management firms looking for coverage. They are all after the supposedly huge number of high net worth individuals.

It’s all left me rather cold, to be frank, and highlights the greed of much of the advice industry. Instead of finding ways to transact without the need to scoop major commissions, some IFAs want to abandon their previous clients in favour of the high net worths. I’m sorry to tell them but, despite this being a distinctly unequal society, the actual number of high net worths in this country is pretty low. Compared with the US, for instance, we have around a fifth of the number of millionaires per head of population.

What’s more, these IFAs will find they have moved into an already crowded marketplace with long-standing wealth managers holding many of these high net worths. And what incentive can these newcomersoffer for clients to move?

At the other end of the scale, we have the banks and insurers, with their sales teams, and the Government-backed advice service planning to offer generic advice. (The less we say about the Financial Services Authority’s attempts at advice the better.)

Overall, though, there is a growing advice gap in this country and a real trick is being missed by the IFAs. They are so het-up about the end of commissions they are forgetting about the much bigger upper middle class – the senior teachers, GPs, etc –once their traditional client base, who need advice.

The truth is that many advisers see either commissions or charging similar hourly rates to a lawyer (nothing less) as the only options. The latter may be acceptable if you have a longstanding relationship with a client and have proven your worth by saving them money. But all too often advisers want to hit you with a charge for recommending a fund or account that you could find out about from reading this or any of other newspaper’s money sections, or by checking out the plethora of excellent financial websites.

In advance of the ban on commissions, the industry is shaking out before our eyes: the tired are shipping out; the greedy are chasing the elusive high net worths. What remains is for others to work out a strategy for the middle – the traditional grist to the IFA mill.

Absent friend

“At last, a bit of good news for savers” is how Ros Altmann, the director-general of Saga, greeted the news that National Savings is relaunching its index-linked savings certificates.

When the certificates were pulled last summer there were some who thought we’d never see them again, at least not linked to the Retail Price Index –the one that has relevance to our daily lives, rather than the Consumer Price Index. And when competition from private sector providers failed to materialise, most savers, many of them elderly and represented by Dr Altmann’s Saga, were condemned to watch their savings shrink compared with prices. But here they are once more in an only slightly watered-down form. Absence makes the heart grow fonder.