Is the writing on the wall for IFAs?
There’s a right royal debate going on about the future of independent financial advisers (IFAs), and we want Money Hospital readers’ input.
The crucial question: do IFAs give better advice than you can find for yourself on the Internet?
Or are they doomed to die out like dinosaurs — washed away by waves of regulation and outweighed by the welter of web-based information?
There are more than 8,000 independent financial advice firms in England and Wales. Their employees and thousands upon thousands of their customers clearly believe IFAs have an important place in the financial ecosystem.
But here you are reading a website, and here we are, busy publishing one — so I can sense we’re in the same boat. We’re going to side with the disappearance of IFAs in favour of the web, aren’t we? Or are we?
I can sense we’re going to end up taking sides…
IFAs vs. the Internet
The debate was kicked off by a minor member of the Liberal Democrats. Speaking at a fringe event during their recent party conference, Treasury spokesman Lord Newby opined:
“The traditional model of the IFA looks to me like a doomed species… I think there will be a drift away from old fashioned financial advice. The regulatory requirements on IFAs are so great, the cost of giving advice is so great and I cannot image why anyone would want to do it. It just looks to me really, really hard.”
The alternative? The internet, apparently. Lord Newby expects apparently our current generation of school leavers will seek their advice almost exclusively online. He hopes people will continue to take financial advice, but not from IFAs, because “they will want it free and they will want it delivered electronically.”
Predictably, the IFA community pounced on the comments and rallied round to defend themselves against the ‘doomed species’ tag. Michelle Stevens, director of a financial services firm, quipped back:
“I bet Lord Newby doesn’t make his investment decisions without some advice.”
The counter-argument is obvious: people don’t understand financial products, and IFAs are needed because they’re experts. They’ve trained the hard way, they’ve passed the exams, and there’s no way you can gather that expertise in an afternoon spent online.
- looking for mortgage advice? Speak to an impartial adviser
That’s aside from the value and reassurance people perceive from discussing their situation one-on-one. Michelle Stevens again: “I cannot believe the faceless internet suits all situations. Clients do still value the face to face contact received when visiting [an] IFA.
Could you solve this problem with the help of the Web?
Let’s take an example question: I have four pension funds running concurrently and I’m due to retire in 22 years. Should I amalgamate those funds for better performance, or keep paying into them simultaneously?
The fact is, although I’m on the financial website side of things, I still couldn’t begin to answer that question authoritatively.
Faced with wall of facts and figures that IFA see daily, most people would flinch. The superiority of the Web as an information conductor means that you and I can probably access a similar amount of data. But most people just need someone knowledgeable to tell them what’s the right thing to do.
And this is where Lord Newby and I differ. To me, IFAs break down complex products that we all rely on for our investments, and help to simplify complex choices that we face today. What’s more, their knowledge base is needed just because every family’s needs are different. How are you to know whether your situation is unique or commonplace, whether your provisions for the future are adequate or not?
Over to you
I think this question hinges on where you’d rather source your knowledge, and whether you’re willing to pay for it.
Put it this way: you can find out via the Internet how to repair a problem with your car, but does that mean you can diagnose the problem accurately to begin with? And does this help you to know what to do when you’re actually underneath the engine hood? My local Nissan service engineer might be £50/hr plus VAT, but he’s better at keeping my car on the road than I am.
So on one hand you have Lord Newby claiming that the emerging generation will seek sources of knowledge that are fast, free and delivered electronically; on the other, the IFA is seen as ‘doomed’ because they delivered their knowledge in person, under regulation and at more than £100 an hour.
Look at them as competing pools of knowledge. The Internet allows the dynamic, uninhibited collection of a vast amount of information, for free, but a lot of ignorance gets scooped up into the same net. The IFA also pools a lot of information but, crucially, knows what to acknowledge and what to reject — and how to translate that to your own situation.
Bearing in mind that one is free and the other is typically £100+ an hour, which do you think will leave you better off?