-> IFA clientele profile: young, entrepreneurs with exacting expectations
-> 58 percent of IFAs added clients in 2009, mainly from branch banking networks
Cardif has released the results of its fourth annual Barometer of Independent Financial Advisors (IFAs). The survey was done in France between May 26 and June 22, 2010 in conjunction with TNS Sofres, the French leader in market research and opinion surveys. The Barometer covers a representative sample group of 501 IFAs*.
Commenting on the results of the latest survey, Roger Mainguy, Director of the Cardif Networks and Partnerships in France, says: “This year we asked IFAs not only about their profession, but also their clientele. The crisis has impacted the attitudes of IFAs' clients, who expect more advice and proactive initiative, even though they are not prepared to pay more for this service. This should push IFAs to change the way they work and charge fees that reflect the value of their expertise.”
“Just as notaries, certified accountants and legal advisors bill their services, the time has come for IFAs to be compensated for the value of the wealth management services and advice they provide. Maintaining the status quo could in the medium term weaken the stability of their activity unless they make an effort to adjust their business model,” Mr. Mainguy adds.
More demanding client expectations for consulting and support create a challenging paradox
The clients of IFA are primarily non-salaried and self-employed professionals. Over 40 percent of them are under 50 years old. This clientele is fairly young compared with wealth management clients in general. They also have an entrepreneurial mindset, are very demanding, and are very careful about choosing their financial consultants.
They have amassed savings mainly from regular revenues, both from professional activities and rental income (cited by 88 percent of the IFAs), as well as from the sale of assets (84 percent) or an inheritance (79 percent). They have long-term investment objectives, mainly planning for their retirement, which was the primary client motivation cited by 60 percent of the IFAs surveyed.
IFAs have seen major changes in client expectations and needs due to the crisis (cited by 71 percent of IFAs).
Clients have turned to their IFAs for solutions to diversify their assets and management strategies, with strong expectations in three key areas:
- Advice: 85 percent of the IFAs have seen greater expectations in terms of the advisory service they provide. The top three competitive advantages for IFAs remain unchanged, namely the quality of their advice, their availability and the stability of the clients' contact.
- Security: Client objectives for their wealth management are linked to long-term horizons and protection of assets. Yield objectives are not cited as frequently.
For life insurance vehicles, IFAs report that their clients place a priority on security. The solidity of the company is the number one criteria (cited by 56 percent of the IFAs), well ahead of the quality of the range of investment vehicles (37 percent). Results show that the effective yield ranks a distant third, cited by only 25 percent.
In this context, clients tend to prefer the security of euro fund instruments: 71 percent of the IFAs say they have not seen any renewed interest among their clients for unit-linked funds.
- Simplicity:76 percent of the IFAs say their clients are turning to the more basic products. Asked about the commercial relationship, 82 percent of them cite a need for better understanding of the products offered.
Introducing fees poses a real challenge
The IFAs say that getting clients to accept fees for their services ranks fourth on the list of challenges they need to address. The number of respondents citing fees as a key challenge rose 9 points compared with the last four years.
“In terms of fees, the results of the survey underline two paradoxes,” says Roger Mainguy, Director of the Cardif Networks and Partnerships in France. “The first paradox is that of all the European savings clients, the French have the greatest demand for advice and security, but are least willing to pay for it. Fifty-three percent of the IFAs say that their clients are taking a closer look at the cost of their services.”
“The second paradox,” says Mr. Mainguy, “concerns the IFAs themselves. These are professionals whose expertise is recognized by their clients. Their ability to provide pertinent advice is a pillar of their marketing strategy, which makes it surprising that they bill nothing or very little for their services. And yet charging fees is clearly the best way to leverage the value of their advisory role.”
Although 66 percent of the IFAs do bill fees to their clients—especially for a comprehensive review of their assets, or for tax advice—fees account for only 17 percent of their compensation (behind fees on assets under management and initial sales charges). Compensation from the volume of assets under management accounts for the vast majority of their revenues, which explains the difficulty the IFAs have in transforming their advantages (personal relations, advice, information, proactive responsiveness, availability, etc.) into financial compensation.
There are however indicators that IFAs can use to take a more offensive strategy in explaining to clients why charging fees for their services is legitimate:
- Current financial trends show favorable momentum.
- IFA clients invest with a long-term horizon, which is propitious to building a relationship anchored in confidence.
- The regulatory environment, identified by 92 percent of the IFAs as a major challenge, continues to change and could alter the context. In the years ahead France could require the same transparency regarding fees as its European neighbors (the Netherlands, the UK and other countries).
IFAs remain fairly optimistic regarding their profession
After continued turbulence in 2009, a year that saw a significant drop in net assets gathered (the average was 2.7 million euros, compared with 3.2 million euros the previous year), IFAs remain optimistic regarding the future of their business. Eight out of 10 IFAs say their business is doing well, even though this overall optimism is mitigated since this is the lowest percentage of positive assessments since 2007.
- The IFAs are generally upbeat about the first half of 2010: 77 percent of them say their financial situation is identical or better compared with 2009. At the same time, the number of IFAs who believe their situation is “clearly not as good” declined from 55 percent in 2009 to just 21 percent in 2010.
- In the wake of the crisis, the majority of the IFAs added new clients (58 percent). These new clients, some of them disappointed by their relation with major branch banking networks are interested in diversifying their assets. Over 80 percent of these new clients came from bank networks and 7 percent form insurance networks.
- Projections for 2010 confirm this favorable outlook since over half of the IFAs expect an increase in assets gathered.
This confidence is mitigated by the fact that 18 percent of the respondents do not see a positive development outlook. The expectations of IFAs are reflected at several levels:
- Recruitment: 21 of the firms surveyed hired staff, compared with just 16 percent the previous year, led by larger firms (over 5 employees).
- Acquisitions: only 39 percent of the IFAs see acquisition opportunities in the coming five years. Opinions are divided concerning the advantages of joining larger groups. The IFAs reaffirmed their confidence in the future of independent structures and thus in their business development model.
* Methodology: Telephone survey by TNS Sofres Finance Department between May 26 and June 22, 2010 covering a representative nationwide sample group of 501 IFAs. Interviewees were selected from a list of 3,900 Independent Financial Advisory firms representative of the IFA segment, or 13 percent of the total population (the representative nature of sample group was validated using quotas for the sizes of the firms and the region).
Cardif (www.cardif.com) is the insurance unit of BNP Paribas Assurance. It is rated, AA by Standard & Poor's. Cardif develops and markets savings and protection solutions which are distributed via diverse channels. With a diversified geographic footprint, Cardif enjoys strong positions in Europe, Asia and Latin America. Cardif's roster of partners now includes more than 35 of the world's top 100 banks.
In France, Cardif has offices in 20 major cities and has worked closely for 27 years with over 2,500 independent financial advisors, providing them with personalized support through a network of 150 local staff dedicated to IFAs.
BNP Paribas Assurance (www.assurance.bnpparibas.com) is the Life and Property & Casualty insurance unit of BNP Paribas. It counts over 8,000 employees, 74 percent of them outside France. BNP Paribas Assurance had gross written premiums of 20.7 billion euros in 2009, of which 41 percent was generated outside France. BNP Paribas Assurance is the world leader in creditor insurance and the fourth-largest life insurance company in France.
BNP Paribas Assurance is actively committed to exemplary Corporate Social Responsibility. It has adopted a Socially Responsible Investment program, encourages diversity throughout the enterprise (earning the "Gender Equality at Work" label in France) and supports local economic development in the markets where it operates.
BNP Paribas is equally committed to environmental responsibility and has deployed an action plan to achieve a 10-percent reduction in the company's carbon emissions.