IF YOU have an independent financial adviser there’s a strong chance you’ve been in touch with them in the days and weeks leading up to the end of the financial year.
In many cases, it will be the last time you ever deal with your IFA, particularly if your end-of-tax-year update is the only time you hear from them.
Thousands of IFAs are set to exit the industry altogether when they become subject to new requirements from next January. Many others are planning to move further upmarket, leaving their less affluent clients behind as, with commission from providers on product sales being banned from next January, they complete the transition to a fee-based model aimed higher up the wealth chain.
Those planning to leave the industry or abandon clients no longer considered worthy of their efforts are in a minority. But it’s potentially a very large minority.
The Financial Services Authority believes the percentage of IFAs exiting the industry will be in single figures, but the Treasury Select Committee heard evidence from several experts last year that suggested up to a third of advisers could be on the way out. That would leave millions of IFA customers without advice.
If you’re among the number who will be left without an IFA from January – or even transferred to a new company – you have a decision to make. The unfortunate likelihood is that many people will turn instead to the banks, further widening an advice gap that is already a cause for great concern.
The ban on sales commission from providers to advisers is aimed at removing bias where advisers recommend products paying the greatest kickbacks. But the unintended consequence is that while the quality of advice will improve – hopefully with the longer-term effect of boosting confidence in the industry - fewer people will have access to that advice.
Groups ranging from the Association of British Insurers to the Financial Services Consumer Panel have warned that one immediate outcome of the reforms will be that financial advice will be less widely available.
Many of those whose IFA is set to leave the industry or ditch them for wealthier clients will next year turn to high-street banks for their financial products and services – and we all know about the quality of “advice” on offer there (or lack thereof, to be more specific).
Others will take the DIY approach and avoid advisers and banks altogether (as a growing number already do), using online fund services to build their own investment portfolios and social lending sites for their savings and loans.
That still leaves a greater number of people without advice at a time when the need and, perhaps, the demand for truly independent advice is on the rise.
Several financial planners and IFAs tell me they’ve seen a marked upswing in business in recent months.
They point to factors including baby boomers reaching retirement, poor cash returns, a tentative return of confidence among investors and the uncertainty of the economic outlook. Demand for advice comes also from retirees who are fed up with being hassled by their banks after depositing large pension sums in their bank accounts.
Where will they go this time next year? Many will, of course, be happy to pay a fee for quality advice and will have an adviser happy to continue serving them.
Others won’t, however. If you’re among that number, you may have had your last conversation with your IFA.