Current F/S Qualifications not guaranteed to reach RDR Standards in 2012!

Well, it’s been an historic week, in terms of Interest Rates. The Monetary Policy Committee has reduced them to an all time low of 1%, since the origin of the Bank of England in 1694, with one more push, to kick start the economy, credit & the mortgage market.

The government have now got to put real pressure on the banks, as the base rate reduction seems to be piece meal, and ineffectual without actually enforcing lending targets, reducing bonuses for bank high flyers, & actually getting them lending again. Certainly, previous reductions in Base Rate might have reduced LIBOR, but that’s about it, and has had no real effect on the economy. Maybe now the government owning stakes in most of the banks, they have real teeth to enforce these changes.

More news on the acquisition trail, the successful IFA Consolidator, Jelf Group has stated that revenue was up by 59% from September 2007 to September 2008, from £39.7 million to £63.1 million. The main reason for this, are the acquisitions of 7 solid brand IFAs during the year such as Manson Group, Clarke Roxburgh Group & Argyll Group, despite their share price reducing nearly 73% over the year. The chief exec for the group, Alan Always, said the share price falls have plummeted across the economy, but that they will be reviewing their cost base in the future!

Certainly, the mergers and acquisitions process that builds up speed week by week in both Banking and IFA sectors, will give the FSA an easier job to regulate them. I can see about 20-30 giant IFA firms navigating a fee based Financial Services landscape, with full resources to offer an holistic approach to all clients, not just HNW. The cost of this, I think, a number of compliant, passionate, professional IFAs that have left the industry in the meantime because of RDR,TCF etc.Is this the pangs of a new world order, I don’t think so, it’s a crying shame and a loss to the Industry.

No real surprise with the next snippet of news; Just Retirement sales volumes have reduced by nearly 9% over the six months between June and December 2008. Their annuity sales are also down by 13%, over this period. Mike Fuller, Chief Exec, has put this down to reduced maturity values in pensions & general market conditions, where as their funds under management have fallen due to wider credit spreads on Corporate Bonds.

Let’s look at this simply, house prices have been battered over the last 18 months, there is a lot less equity in houses generally, to give people equity release options. I’m sure there’s still a market out there, as some people have lived in a house for 35 years and don’t even have a mortgage, but certainly this dip for equity release firms like Just Retirement, isn’t a bolt from the blue!

Apparently, the F/S Skills Council has let advisers know that the existing range of F/S Qualifications don’t even guarantee them, that they will meet to new requirement under the Retail Distribution Review. The industry will have to wait until requirements are actually defined. by the FSSC, and that IFAs & advisers should be aware that the exams they are currently sitting may move them closer to diploma level, but whether that is enough for RDR in 2012 is another question.

We are in the pit of the worst recession in History, Capital Adequacy Ratios are crippling some IFAs, funds under management are falling quarter by quarter, the FSSC should quickly resolve this and at least let IFAs know where they stand on the technical side. Granted the Retail Distribution Review is important to the future of the IFA market, but certainly, many IFAs will be nervous about managing their route towards hitting these standards, and should at least know what those standards are.

IFA firms are warned about opportunistic tele-com companies!

Fascinating article in FT Adviser.co.uk, regarding IFA firms and practices being targeted by tele-com firms, claiming that they need to purchase a £30,000 telephone system to fit in with previous FSA legislation. These IFAs are being warned not to fall for this ploy. Basically, last yr, the FSA outlined guidelines and rules on certain calls being taped, to allow the regulator to investigate and enforce legislation better. However, the FSA has had to re-clarify that this doesn’t apply to all types of Financial Advisers, and that many firms are exempted and shouldn’t listen to the claims of these tele-com opportunists.

My thoughts on this are simple, we are in the pit of one of the worst recessions in living memory, and all firms are scraping for business in all sectors. These tele-com firms have latched onto this idea and out of desperation have been shall we say “economical with the truth”, but once again, the FSA should have been clearer with the guidelines in this area, from the on set, not giving these opportunists the opportunity in the first place! The FSA are the regulators, they should be crystal clear in their regulation!

The Treasury Select Committee has called the Nationwide, Yorkshire & Britannia Building Societies to give evidence on “their part” in the current Banking crisis. The 3 Chief Execs are all to be questioned this week. Issues to be covered are the “uber-building societies” on customer service, competition & their future resilience. I don’t think the government have any thing left to prop them & the banks up with, in the future.

If we, as a sophisticated modern economy, are going to move forward and combat these events in the future, people need to become responsible for not just their previous actions, but their future part in the Banking Sector. I think the IFAs will gain from the uncertainty surrounding the Building Society & Banking Sectors going forward. Clients are becoming more sophisticated in their Financial Planning, partly through necessity, and I think there will be a shift back to traditional IFAs who give Financial Planning Advice not sell products!

A bit of good news for Legal & General, they announced that their UK and Worldwide business sales increased by 3% from December 2007 to December 2008! Sales purely in the UK rose from £1.321 Billion to £1.367 Billion, over this period.

Underneath these figures, a story is told. Apparently Protection sales were down last year, mainly due to the Mortgage slump, but due to the purchase of Suffolk Life, early in 2008, L&G Sipp business soared, as Suffolk Life are a Sipp specialist. It was also announced that they look quite robust going forward into 2009! I think their major challenge in the future will be one of distribution, with Northern Rock & Bradford & Bingley diminishing, I think L&G will look towards the IFA sector & their direct network whilst building up their partnerships again!

I couldn’t finish my blog, this week, without mentioning about the world of Mergers & Acquisitions. Resolution Limited, an organisation set up in 2008 as a “buy-out” firm, has posted a loss of £700,000 in its first trading quarter. On the FTSE, and having raised £660,000 from Investors, they are still eyeing new acquisitions in the IFA market this year.

If I was a betting man, which I am, I’d be surprised if there’s a single week, in the next 6 months when I don’t read or hear some form of article or news re- another acquisition, another buy-out or another merger. The arguments are very strong for acquisitions currently; not least economies of scale, but a larger firm that is “cash covered” can expand during a down turn such as Towergate, and be a true giant when the good times return. They are buying viable businesses with track records! Watch out Towergate, Resolution will be catching up!