Who decided that IFAs are not investment experts?

There has been a real trend over the last year or two for IFAs to either outsource their investment management, or get rid of it completely.

I believe the logic for this may be a fear of RDR, in being able to demonstrate that a firm has the relevant expertise and knowledge to be able to manage investments.

It is also possible that a firm being able to receive an ongoing share of fees from a DFM, for doing little other than quarterly governance meetings, may also have influenced the decision… (I appreciate that may be a controversial statement, and I look forward to any comments pointing out that this is a little simplistic – but I don’t think it is without some basis in fact).

Well, I am wondering whether the IFA world may have been rather duped by the DFMs and stockbrokers of this world.  ‘We are the experts’ they said, ‘leave it all to us’.

There are a couple of problems with this strategy post RDR.  First is the underlying principle of RDR that the firm must justify its earnings.  The FSA may well be questioning what the firms are actually doing for this introducers fee.  Indeed, I wouldn’t be at all surprised if the payment of introductory fees fizzles out over the next twelve months.

Secondly, it seems likely that an IFA managed portfolio, as part of an overall planning and advisory process, will not require VAT to be added to the fee.  Funds managed on a discretionary basis, however, do have VAT added.

This could give two very good reasons why many IFA firms decide to bring the investment management of their client’s money back in house.  After all, an on going management fee can be a significant profit centre, why give it away?

Of course, the answer to this is down to the requirement for having the relevant qualifications and on going expertise to be able to manage investments.  As long as a firm has an appropriate investment proposition, which probably comprises an investment committee, a written approach, suitable on going CPD and implementation to client’s portfolios that can be evidenced, there is no reason why this should be an obstacle.

I would suggest it is time for IFAs fought back on this point.  We have a significant amount of investment knowledge in our industry, indeed when I started some 25 years ago we were known as investment experts.  I am fully behind the rise of planning as being crucial for an adviser, but there is no reason why this can’t sit alongside being investment experts as well.

 

Share:

8 thoughts on “Who decided that IFAs are not investment experts?

  • Good points Chris.

    I’m yet to see a really convincing argument for outsourcing the “looking after” of what is one of a firms most valuable assets. Why would one wish to lose that control ?

    The way to overcome this of course is to offer in house, an advised and discretionary service.

    Reply
  • Good points Chris

    IMO clients see investment management as a given and don’t particularly value it. Therefore we need to deliver it as cheaply as possible, and very effectively, and concentrate on what they do value, financial planning and relationship management.

    There is, however, a maximum amount clients will pay in total, which means that every basis point that goes to a DFM means reduced scope for revenue and profit for the adviser/planner.

    Reply
  • I recall a visit from a fund management house whilst representing a life assurer and them using the phrase ‘an IFA is an independent financial adviser, not an investment financial adviser’.

    Thanks for pointing out some simple but worthwhile rebuttals to that.

    I have particular interest in active vs passive management as an argument now.

    Reply
  • Just seen this, I have been working for a financial planner for three years and one of the key parts of our proposition is the investment management. With the changes in pensions announced this is going to be even more important. Pension income simplicity is good news but if the money isn’t managed well it will be a disaster for some. A financial planner who controls this and understands this I think personally will stand out.

    Reply
  • Good points Chris

    IMO clients see investment management as a given and don’t particularly value it. Therefore we need to deliver it as cheaply as possible, and very effectively, and concentrate on what they do value, financial planning and relationship management.

    There is, however, a maximum amount clients will pay in total, which means that every basis point that goes to a DFM means reduced scope for revenue and profit for the adviser/planner.

    Reply
  • I recall a visit from a fund management house whilst representing a life assurer and them using the phrase ‘an IFA is an independent financial adviser, not an investment financial adviser’.

    Thanks for pointing out some simple but worthwhile rebuttals to that.

    I have particular interest in active vs passive management as an argument now.

    Reply
  • Just seen this, I have been working for a financial planner for three years and one of the key parts of our proposition is the investment management. With the changes in pensions announced this is going to be even more important. Pension income simplicity is good news but if the money isn’t managed well it will be a disaster for some. A financial planner who controls this and understands this I think personally will stand out.

    Reply
  • Good points Chris.

    I’m yet to see a really convincing argument for outsourcing the “looking after” of what is one of a firms most valuable assets. Why would one wish to lose that control ?

    The way to overcome this of course is to offer in house, an advised and discretionary service.

    Reply

Leave a Reply