What’s the future for financial advice?

I’ll cut to the chase. I have been calling for a ban on commission on the sale of investment products for longer than I can remember.

The arguments for a ban are well worn, and will be familiar to everyone at The Adviser Lounge, so I won’t go over them again here.

But I will say this: I’m glad to see the days of commission have finally been relegated to the dustbin of history.

This doesn’t mean, of course, that everything is suddenly fine and dandy. In fact, there is currently a great deal of confusion in the market — for both consumers and IFAs.

In the past, consumers would have visited their local IFA and chosen to pay either a fee or commission. Now they have the simple choice to either pay the fee or do it themselves.

Thing is, it’s not really that simple a choice.

Many IFAs are also struggling to adjust to the post-RDR advice wasteland. A sizeable chunk have reacted by migrating upwards, focusing on so-called high net worth individuals.

They’ve effectively morphed into wealth managers overnight.

But while focusing on HNWs is all well and good, I am not convinced that there are enough of these people to go around to sustain the number of IFAs that are now focusing on this area of the market.

Per head of population, the UK has fewer than a fifth of the millionaires that are in the US.

At some point soon many IFAs are going to find out that their plan to migrate upwards will be a lot more challenging than they had planned for. It could even cost them their business.

There’s another threat to IFAs. Big networks and fund management groups like Fidelity are assessing how they, too, can camp in this space.

They believe that by offering ‘guidance’ rather than advice they can take the custom that traditionally would have gone to the IFA.

The danger here, though, is less the moment of making an investment decision and more in the ongoing review of that decision.

While ‘guidance’ may help an individual to make a buying decision, after that it leaves them high and dry. The emphasis is on the private investor to review and take things forward.

People, of course, are notoriously bad at reviewing. As an active private investor myself, I have taken my eye off the ball on more than one occasion — and have been burned as a result.

Guidance can shift product, for sure, but it will never have the same result that a good ongoing relationship between a client and IFA can.

At its best, the relationship between a client and IFA is not just focused on long-term goals but is reactive enough to tack a portfolio in another direction if necessary. And that’s something guidance just can’t do.

But again we return to the central problem: how to get affordable advice to consumers (specifically the upper middle classes, for want of a better term) and not just the HNWs?

The answer is simple: offer a superb service, which justifies the fee, and also offer a choice of fee structures, which facilitates payment of the fee.

Ultimately, of course, good IFAs will always manage to show that they are worth their weight in investment gold. And if they can do that, they’ve got nothing to worry about.

Over to you.