UK planners face depolorisation threat

Thedistributional strength of independent financial advisers (IFAs) in the UK is under threat by depolarisation legislation, which will see banks and large financial institutions gain a competitive advantage and eat up IFA market share, according to market analysis group Datamonitor.

The research group says the new Financial Services Authority (FSA) regulations, which will move the advisory market towards a more Australian style model instead of advisers being either exclusively tied or independent, will see a decline in IFA market share in some sectors of advice by as much as 18 per cent over five years.

Datamonitor financial services analyst Alan Shields says banks will gain a competitive advantage with the new legislation, though the date of introduction has not been finalised, by leveraging their considerable distribution networks with retail customers and making it harder for IFAs to distinguish themselves as expert advisers.

“It will be in the hands of IFAs to decide how they can best compete in this new environment, whether they stay independent and focus on relationships, form strategic partnerships, focus on wealthier clients or just consolidate to survive,” Shields says.

In the report entitled,UK Independent Financial Advisors 2003, Datamonitor says IFAs will lose market share in total annual life and pension term products, to fall by over nine per cent in five years.

Datamonitor says IFAs will feel the largest squeeze in the pension market. The proposed introduction of simpler style products will not require the level of face-to-face advice currently offered by IFAs, which combined with legislation, will see a decline of 18.6 per cent in pension market share for IFA’s in five years.

The decline follows a recent drive towards consolidation in the industry, where the number of IFAs joining independent networks has increased considerably over the past five years, from 4,589 in 1998 to 6,246 in 2002.