Either side of the Christmas period, the IFA community was busy completing a survey of RDR for the Heath Report and Panacea Adviser. This week Action Consulting has been busy number-crunching, and has presented the results to us.
I do not want to spoil the launch of the final Heath Report in two weeks’ time, but the trail issue needs to be aired now.
In March last year, I joined the Panacea Adviser team for a meeting at the FCA. The subject was a Panacea survey which had been conducted amongst 1,759 IFAs in the previous autumn. It demonstrated that 94 per cent believed the removal of trail commission would be “catastrophic”. These results were dismissed by the FCA staff as “not significant”. This begs the question that, given that 1,759 IFAs constitute 50 per cent of all the UK’s directly authorised adviser firms, how many do you need before a result becomes significant? Panacea reran the same survey last autumn with the same results, so the issue has not gone away.
Our latest survey has looked at who would be affected by the removal of trail. Viscerally I expected that the transactional or generalist IFAs would be most exposed, by virtue of having to persuade a large number of clients to move to ‘clean’ funds. That is only part of the story. Interestingly all business types are exposed.
Forty-six per cent of IFAs are dependent on trail for less than 20 per cent of their total income. Networks are particularly exposed here as they have loads of trail commission emanating from orphan clients and no profits. Thirty per cent still derive 20 to 40 per cent of their income through trail. Another 12 per cent of IFAs get 40 to 60 per cent of their income from trail, with 9 per cent in excess of 60 per cent.
The issue is heritage products; namely products for which no case can be made for the client to move. For the well-established adviser this number may represent 40 per cent of his historical clients.
The long-trading boutique advisers have as many issues as the traditional IFAs.When trail goes – and it will if it remains unchallenged – there will be another cull of the sector. Thousands more advisers and millions more consumers disenfranchised, and how providers cope with servicing clients direct is a mystery.
This act of vandalism must be stopped. If 40 per cent of trail is untransferable, the sector has lost £3.3bn from its value, by regulatory whim. Who would invest in an industry like that?
Garry Heath is editor of the Heath Report
