The future of some advice firms is in doubt as the profession is forced to tighten its belt to cope with coronavirus, writes Smith & Pinching director Carl Lamb. Here he explores why some firms will go under, what the regulator should do and why advisers must still go above and beyond for clients
The world has changed for everyone now that we are in the grip of the coronavirus pandemic and it is difficult to think about anything else in these challenging times.
While we are all concerned for the health of our family and friends, as independent financial advisers, we have two main worries resulting from the turbulent markets we are seeing at the moment: the survival of our business and the stability our clients' financial affairs.
It's apparent that a strong balance sheet may make all the difference to our own survival. Many firms - the vast majority - are using fee models based on a percentage of clients' investments under management.
Inevitably, plummeting markets such as we see at the moment are cutting huge chunks out of our income.
Many of us will need to tighten our belts to ensure that we can continue to give our clients the care they need during these difficult times.
However, we are bound to maintain the level of service we give our clients, not just by contract and regulation but also by the professionalism of our firms.
We all want to ensure that our clients are reassured, have full access to the advice they need and are guided through the crisis to reach better times when they do arrive. This may, in fact, increase our costs in the coming months.
Above and beyond
My view is that there should be no hiding under the parapet. Clients need us: now is the time for us to step up to the mark and deliver a service that goes beyond the commitments we make in our client agreements.
Clearly, we have to adapt to continue to serve our clients, many of whom are in the "at-risk" age group of over 70.
Technology is giving us the tools we need to provide advice services at a distance and a sensible approach will be needed to ensure we can deliver advice safely. In a nutshell, clients should not have to worry about getting access to advice.
However, we must acknowledge that clients will need greater care at the moment so we should factor in the need for more conversations.
There will, inevitably, be clients who will have knee-jerk reactions to falling markets and it will take time and effort to ensure that no clients are disadvantaged by inadvisable action taken now.
There will be additional work to do to support clients as they adjust their planning in the light of market falls.
Client income and growth will inevitably be affected, and measures will need to be taken to ensure the sustainability of the plans we've put in place.
Managing client expectations will be important too - I suspect it's going to be many months (if not years) before we see full recovery in financial markets.
Within each of our firms, we have other responsibilities. We must provide a safe workplace for our staff, enable working from home, have good policies for those that need to self-isolate or who are at risk and, importantly, ensure that staff feel their jobs are secure. Internal communication is vital.
Managing the new world of work will put yet more strain on our systems and on key members of our teams.
I fear that this latest challenge to our survival will prove too much for some firms: our sector will see casualties.
However, I am optimistic that good times will return. Advice will continue to be needed throughout the crisis so we will continue to receive an income from our clients, albeit at a lower level.
Those fighting to survive will need to work smarter and hang on in there.
Action from regulator
However, we shouldn't have to fight on our own for survival. I believe that the regulator can help us in two critical ways.
Firstly, we should see a commitment to no further FSCS levies during the next six months. This will enable us to more accurately plan our finances without the prospect of another levy dropping onto us at short notice.
Secondly, the FCA should suspend its capital adequacy rules for the time being so that those firms who do need to dip into their reserves can do so without falling foul of the rules when they submit their next Gabriel return.
It's hard not to see the current situation as apocalyptic - the end of the world as we know it. But we owe it to our clients to knuckle down and do what's necessary to ensure we all come out of it intact. Good luck, everyone…
This article first appeared on our sister title Professional Adviser