Days of the financial “adviser” are numbered, says Stoakley
RDR will lead to a rise of discretionary managers and execution-only firms at the expense of IFAs who offer in-depth guidance to clients.
By Joshua Ausden, News Editor, FE Trustnet
Wednesday July 04, 2012
The advisory role of IFAs will be under threat once RDR is introduced, according to Robin Stoakley (pictured)
, managing director of intermediary business at Schroders.
Stoakley believes the outsourcing to discretionary managers and the move to execution-only will gather momentum once the Retail Distribution Review comes into effect.
"We’re getting a greater proportion of our business from discretionary managers appointed by IFAs rather than from the IFAs themselves and I expect this trend to continue," he said.
"There are some DFMs (discretionary fund managers) who have said they get more than two-thirds of their business from IFAs, which was not the case four of five years ago."
"In this respect, the role of advisers actually selecting funds and charging investors for advice will be less prominent."
Stoakley says that at present Schroders gets 45 per cent of its retail business directly through IFAs, 45 per cent through discretionary managers and 10 per cent through advisory firms that are execution-only.
"In four or five years' time I’d expect this split to look more like 20 per cent, 60 per cent, 20 per cent," he added.
"The business is still coming from the IFAs, but indirectly. It’s the managers and investors who will be picking the funds."
Stoakley believes a significant proportion of the IFA community will be wiped out post RDR, though he isn’t quite as adamant as Rathbones' chief investment officer Julian Chillingworth, who recently put the figure at 50 per cent.
"I think this is a little extreme – I’d say more like 25 per cent," Stoakley continued. "I think we’re more likely to see IFAs drop the advisory tail rather than pack it in altogether, because the demand isn’t going to be there."
"If you’re a medium- to low-net-worth individual, I think you’re far less likely to pay for advice when you see the actual figure in front of you. I think you’re much more likely to pay 0.5 per cent than £3,000," he added.
Darius McDermott (pictured)
, managing director at Chelsea Financial Services, says he agrees with Stoakley in principle, but doesn’t expect the advisory role of IFAs to completely diminish.
"The problem is, if you’re charging 0.5 per cent for advice on an individual who holds a limited amount of money – let’s say £20,000 to £50,000 – it’s not worth the IFAs' trouble due to all the regulatory costs," he explained.
"For this reason, you’re going to see a greater number of advisers move to ‘simplified’ advice or self-directed. That said, I think IFAs still have a big role to play in terms of determining flows. I wouldn’t agree with some of the numbers being quoted."
McDermott thinks that many IFAs underestimate how difficult the transition from advisory to execution services will be.
"There are many who think self-directed is a piece of cake, but it’s not," he said. "IFAs are going to have to be very careful what they say, because it’s difficult to determine exactly what constitutes ‘advice’."
Chelsea Financial Services offers an execution-only service.