IFAs Continue Being "Restricted" By The FCA, Says Harrison Spence

Mark Shapland

25 April 2014

More and more independent financial advisors are becoming specialists, focusing on a handful of investment products or markets, according to research by Harrison Spence shows that 15 per cent of IFAs will go down the restricted route in the next year as many firms cannot keep up with costs involved in doing compliance, research and due diligence that are required if they want to keep the independent tag.

“Segmentation is essential for those advisory firms that want to create a solid foundation for strategic decisions and to focus their energies on those clients that are most valuable,” said Brian Spence, founder and managing partner at Harrison Spence.

“Getting a comprehensive view of your client base may well also reveal new growth opportunities. Lighter-touch offerings for lower-value clients are going to be essential for protecting profitability. Finding efficiencies will also lessen the need to turn business away – something no-one likes to do. Arriving at a model where clients of all sizes can be serviced at the appropriate level will be a challenge well worth surmounting,” he added.

The data also shows that just under three-quarters of advisors intend to remain independent for the foreseeable future, despite the FCA’s crackdown on the incorrect use of the label. Yet doubts remain about how much longer these firms can hold out for.

“IFAs have always been fiercely independent and, despite the challenges they face, 74 per cent of respondents plan to remain so,” Spence added. “While this is laudable, we believe that margin pressures will compel many advisors to become restricted, despite a high proportion placing such great store on their independence. Deciding how to retain independence profitably will require real thought and many have yet to fully explore their options.”

The majority of IFAs are carrying on working as they have always done, with 22 per cent of respondents reporting that they’ve had to turn lower-value clients away.