Alternative Business Structures

 In Finance & Investments

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New ways of going about professional practice are not restricted to legal services.

This has been the case for independent financial advisers (IFAs) ever since the independent designation came about in the 1980s. Being independent for the first time meant that advisers had a duty to review the whole of the market and recommend the most suitable product from the market. Not many people liked it (except consumers, of course).

Since then the FSA has continually refined what it means to be an IFA and at each turn these changes have been met with scepticism and a chorus of disapproval by the adviser community. However, the provision of financial advice has improved as a result: not only in the speed of delivery; and increased commoditisation for the mass market; but also in the complexity and quality of bespoke work capable of being delivered to the wealthier sector of the market.

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For instance, the use of a variety of trust documents is now commonplace within financial services in a way that it was not even 10 years ago. Discounted gift trusts, life policies in trust, and pension trusts are now mainstream practice for quality IFAs. New technology and advanced regulation has forced advisers to move into this area. Consumer choice has benefited as a result.

Similarly with legal services, time has moved on and new ways of providing services to the general public have developed. Therefore, new regulations and rules of how to provide services also need to develop (and be refined) through time.

For financial advice consumers, this has largely resulted in positive outcomes. Important, but relatively straightforward financial advice, such as term assurance, can now be set up extremely quickly, easily, and cheaply. This may mean that an area of business has disappeared for the IFA, but few would argue that this has been a bad development for consumers. In fact, this is a great opportunity for advisers. New technology allows us to deliver more complex (and more interesting) advice, which as yet cannot be delivered online. At the same time the demand for this has increased as the wealthier client largely has become more aware and demanding of good service.

For instance, online “wrap” platforms now allow a client’s complete financial holdings to be held and traded on one nominee account (and within a variety of trusts). This has brought great speed, flexibility, as well as information benefits to clients. It also means that more complex advice can be delivered cost effectively to a wider range of clients than previously.

Technology has also meant that specialist online portals like the trust discussion forum enable ideas and learning to be disseminated amongst our community: solicitors, IFAs and tax advisers alike. Alongside this, emails, word processors and search engines enable us to quickly find new ways of doing things and deliver these to clients in a profitable way. After all, nobody would now think of spending a morning handwriting, with quill and ink, a deed sealed on legal parchment. This has not taken away work from the person who used to handwrite such a deed, rather it has created the ability for us to complete more complex work and add more value. Thus technology and updated regulation has and will enable advisors to undertake more complex work.

IFAs can no longer rely on selling products but instead have to offer a knowledge-based advisory service that will increasingly work alongside solicitors and accountants. This has happened quickly: in under 10 years. Many direct sales forces (those selling one company’s products) have become obsolete over this time, making thousands of financial advisers redundant. Only a very few of these advisers were able to make the transition to being a new IFA. In the end this was in the consumers’ interest.

Nor has this development stopped. The next 2 years will see the regulatory burden increase yet further, and to a further chorus of disapproval. As a result of this, it is predicted that within the next 5 years a further 40% of IFAs will leave the industry or move into another more restricted advice model. This is a necessary step and will only bring greater efficiencies and quality to consumers.

Therefore, I personally welcome as overdue the requirement to allow solicitors and other practitioners the ability to work closer together. The increasing complexity of professional work and the demands of clients have made this an everyday requirement in any event. As the complexity increases, the degree of specialism increases, and with that specialism must come multi-disciplinary practice.

For over a decade now, it has been clear to any IFA who wanted to build a long term practice based on advising clients (and not selling products) that they had to work more closely with the legal and tax professions. It was clear to any forward thinking IFA that they could not serve the mass market. This could be done more efficiently elsewhere: by banks; tied advisers; and the internet. The same will now become apparent to law firms.

In order to survive, the IFAs who remain will continually be seeking alternative business structures. The same will happen in legal services.

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