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.

ALT_TAG

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.

ALT_TAG

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.

Tweet this article
Print
Email

Add your comment

Step 1: Tell us what you think...

Step 2: Prove you're not a robot...

	You don't have to do this every time you submit a comment. Login or register free and you won't see it again.
Enter the words above:


Step 3: Submit your comment...

Tony Laverick Jul 06th, 2012 at 05:34 PM

Clearly he confuses investment with advice.

Daniel Jul 06th, 2012 at 10:46 AM

Like any profession when it changes, there will be those who adapt and thrive and those that fall by the wayside.

Theo you are very inaccurate. A 3% charge is not too much for a small investor. Someone investing £100 would pay £3 for a fund recommendation, where is the lack of value there?

What will happen with the unbundling thing is that there will be a swathe of new units launched and the industry will become more complicated to suit the FSA's new rules.

The problem with transparency is the same in cars, if you had a transparent bonnet you would see an engine, how many motorists know how an engine works and whether that particular engine is a good one or not. Just because we will now be forced to show people the engine doesn't mean that they will have a better understanding of where their money is going, it will simply lead to more confusion and cost in the industry.

www.ifaplanner.biz

IFA Jul 04th, 2012 at 09:38 PM

Theo, which IFA's rebate all their initial and trail? None. I think you are getting confused with platforms that offer Independent advisory services separate and very different terms.

Hargreaves Lansdown?

Theo Jul 04th, 2012 at 04:17 PM

I shall be sorry to see some good IFAs close down. All those I have known were competent, and very pleasant to deal with. Far, far, better than dealing directly with fund houses, with their bureaucracies and Gestapo-like ID checks. I certainly prefer a visit the dentist than dealing with Henderson.

The basic problem with IFA remuneration for UT sales is that paying a fee is only justified for very big investors and for small investors the typical commission charges, 3% initial and 0.5% annually, are far too high. This is shown by the growing number of IFAs who rebate all their initial commission and part of their trail commission as well. One very good IFA even rebates the whole of it.

Further more, they made their situation worse by accepting different commission rates from different fund houses which opened them up to the suspicion of bias. Fatal for a professional relationship.

Another mistake was that they considered themselves as working for the fund managers rather than the investors. In spite of the fact that in this country investment charges are among the highest in the world, I have never heard of an IFA opposing the gross overcharging, performance fees and other extortionate practices fund houses are trying. They should read what Which? July, 2012 has to say on these things.

Steve Dodge Jul 04th, 2012 at 03:35 PM

The days of some Financial advisers are numbered, there can be no doubt about that, they will not pass the qualification entry level. The days of high initial commission ending is almost certainly going to put a few more out of business. In my humble 50 year experience of this business I have yet to meet a DFM who has any real clue about where to invest any better than most good IFA's so I do not see the need to turn to them in future. Good IFA's have a long term working relationship with clients that I beleive will continue despite the FSA's best efforts to put us all out of business.

ASF Jul 06th, 2012 at 10:25 AM

Steve. I could not agree more with your view. Theo no one works for nothing if they do they certainly wont be around long.

IFA Jul 04th, 2012 at 03:19 PM

Couldn't have summarised it better Nick...

nick Jul 04th, 2012 at 02:21 PM

to m hill - if you put 'some' or even 'most' in front of your first sentence then I would probably agree. In any industry/profession there are both good and bad practitioners. You spoil your own argument by calling ISAs investments though - ISAs are tax efficient wrappers which can contain a whole array of different investments (some simple and others less so). If you don't understand this, maybe you need a good IFA to explain it to you - for a fee!

m hill Jul 04th, 2012 at 12:56 PM

IFA's do not offer a good service for the fee's and any steps away from being dependant on them is to be welcome The sooner we get to simple investments (such as ISA's) the better the result will be for the consumer As for all those trail commisions---well

Socrates Jul 04th, 2012 at 02:32 PM

m hill obviously knows very little about the role of an IFA. I have 400 very satisfied clients who would disagree with him, they are willing to pay for my services and the value it provides.

Alan Flinders Jul 04th, 2012 at 02:17 PM

I have been advising for over 30 years and the demand for advice has never greater and yes we do charge fees. I agree that the numbers of IFA's will fall post RDR. However I also believe that in the long term the numbers will grow. People seem to forget that being an IFA is not just about investing lump sums. There is a growing demand for financial advice on a variety of topics, which of course but not exclusively includes investment. If you are going to make these comments please consider the wider picture. And M Hill is clearly uniformed maybe he or she is expecting products to be as simple as him.