The future of the IFA - endangered or empowered?

Financial advisers are entrepreneurs and when entrepreneurs see a need, they see an opportunity. So, before looking to the future of the independent financial advisor (IFA), let us view things from a customer perspective.

We know South African consumers do not save enough. Most reach retirement age with too little capital and the average South African does not have enough life or disability insurance.

All I want to do

Before realising this future, you need to make some decisions. The first consideration is about the capacity in which to respond to this need for advice.

Looking at the Retail Distribution Review (RDR) discussion paper, you can be a tied advisor, multi-tied advisor or IFA. What do these titles mean? Look at them as a relationship with product suppliers and measure that in terms of choice and control.

RDR proposes another label any adviser may use in addition to those above, namely “financial planner”. Financial planning is less about product and more about process and competence.

The next step

Charles Darwin’s words (found in the text box) are relevant for advisers looking forward because they need to adapt. Change is a choice. So, decide what you want to do and who you’re competing against. If you know your competitive edge and where to change, you can take charge of that change.

For example, to compete on price to a customer; understand that there are direct, online investment platforms which have a total charge to customer of 0.25% pa.

So, if you fight over price, you are going to lose. You need to move the fight to your territory. And, your territory is about the value you bring. You need to work this out because this is your value proposition. It is what customers will pay for, and typically it will sit in the area of financial advice and advice process.

Coupled to your value proposition and advice process are things like:

• Specialisation or expertise: advisers do more than tell customers. You gather information and seek to understand their circumstances. Then you give advice that is suitable to their needs.
• Information: you provide information and reduce the information overload that customers face. Ironically, complex financial products are your allies because customers need you to demystify the information.
• Personalised attention: you involve customers. You are there when there is a death and the claim needs to happen. You are called when the markets misbehave. You act as counsellor, sounding board and advisor; you give peace of mind and the personal attention customers seek and for which they are willing to pay. You just need to make them notice that you are doing this.

Where to start?

As our industry sits on the cusp of RDR, we asked IFAs in the UK what lessons we could apply locally. They say that you need to start with the end in mind, understand what you want to achieve, and then focus on the elements that need your attention, especially:

• Have a clear client value proposition (including systems, segmentation and due diligence process); and
• Review your business model and practices. By understanding what would destroy your business, you will know how and where to create value.

For me, the future for IFAs is positive despite the changes and challenges they face. It does not endanger IFAs, as long as they respond or adapt.

It empowers them to focus on their businesses, enhance their offerings and be seen to be offering more value. With the right work, focus and dedication, they will survive.