For all the obstacles facing IFA firms – pension reform, regulatory pressure, robo-advice competitors, compensation scheme levies, mis-selling scandals – this is in fact the perfect time to be in the business. If advisers can meet a few key challenges, it could be even better.

When the regulator announced the retail distribution review (RDR) in 2006 there was much tearing of hair and gnashing of teeth.

Predictions of a substantial reduction in the number of people offering financial advice proved accurate, but looking back over my 25-year career and considering the huge competition the IFA market has had from the likes of Allied Dunbar, Abbey Life and the bancassurers, I wonder how advisers managed to compete at all.

The prediction that the RDR would cause an 'advice gap’ has come true and many advisers are faced with the issue of how to deal with smaller investors, arguably those that need help the most.

So, where are we now?

The dramatic reduction in the number of advisers has left the surviving advice community in a privileged position. As any student of economics will say, an ideal place for a business is where demand exceeds supply and where there are barriers to new entrants to a profession.

The requirement to be qualified is one such barrier. On top of that, businesses are better. There is a level of professionalism across the whole community that was lacking in the past.

The time is right

There are other factors that make this a perfect time to be in the advice business:

  • The Financial Conduct Authority (FCA) is more proactive than its predecessor, the Financial Services Authority, in terms of identifying toxic investments, and preventing poor advice. It still has some way to go, though.
  • The long period of low interest rates is causing savers to consider investing when they might not otherwise have done so. I have seen clients who traditionally only invested 50% of their total wealth increasing this substantially.
  • The huge changes in pension legislation over the past few years have increased interest in funding retirement, and the number of people taking their retirement options more seriously has increased significantly.
  • Contrary to popular belief, the Money Advice Service and retirement guidance service Pension Wise are doing their job well and dealing with a steady volume of enquiries. This is not due to the efficiency of the providers, but because it is difficult to navigate through all of the decisions required when choosing how to fund your retirement without help of some kind, even if it is not regulated financial advice!

Challenges ahead

Despite being bullish about the future of the profession, it is not without its challenges:

* Increased qualification requirements can make recruitment challenging. This is important, especially taking into account the fact the profession is ageing.

* The administrative burden on firms can interfere with the amount of time they have to spend with clients, and could affect the quality of advice given.

* Increased regulatory and compliance costs have to be passed on to clients, and this has forced advice firms towards the high-net-worth market to protect profit margins.

* The question remains of how to communicate with clients so that they understand the information provided, yet at the same time meet the needs of the regulator and compliance officer.

* Interference by government does not always have a positive effect on investors or the profession; for example, earlier this year the FCA made many advisers reapply for the pension transfer permissions.

Bright future

Over the years I have seen endowment mis-selling, pension mis-selling, investment scandals such as Keydata and Arch Cru and increased qualification requirements such as the Financial Planning Certificate in 1993 and more recently the diploma.

On each occasion the doom-mongers forecast disaster for IFAs, but each time the end result was a more professional offering to clients, and companies that embraced change have been granted the opportunity to run a successful business in a fascinating finance profession.

The next five years will almost certainly be no less challenging than the last, but hopefully we have learned that change can be good, and we can look forward to providing an excellent service to our clients for the foreseeable future.

Ian Head is director of Fund Management.