It is undoubtedly tough times for many businesses across the UK, with the economy in recession and challenging market conditions.
This applies equally to the retail financial services sector, which faces its own unique challenges in addition to the difficult economic climate.
Today we have seen the news that Honister Capital has entered administration.
Honister Capital is a group of IFA firms comprising of Honister Partners, Burns-Anderson and Sage Financial Services. It consists of around 900 independent financial advisers, many trading under different names as appointed representatives of the former.
As a result of the administration, which was prompted by an inability to renew their professional indemnity insurance (a regulatory requirement), these advisers can no longer provide any advice to their clients or deliver an ongoing service.
Because the group does not have permissions to hold any client money, the clients of these IFAs should not be immediately disadvantaged as a result. It seems likely that any future claims for bad advice will now fall on the Financial Services Compensation Scheme (FSCS), to be funded by the rest of the IFA sector.
We have long been critical of the unsustainable business models often followed by many of the larger network and national IFA firms.
Many of these firms tend to chase scale and turnover, at the expense of profitability. We see aggressive recruitment tactics encouraging IFAs to join these firms and enjoy lower costs, in return of course for less support and an uncertain future.
As an investor, understanding the financial strength of your IFA firm is an important item of due diligence; you want the IFA you select to be able to provide advice and service over the long-term.
Financial strength is one of the factors considered by the judges of the Gold Standard Awards, which we have won in five of the last six years.
Inevitably there will now follow a period of disruption as IFAs who used to work for Honister Capital and their subsidiaries seek answers about the future. We are already having conversations with a couple of these IFAs about the possibility of joining Informed Choice.
Clients of Honister Partners will eventually get access to the Financial Services Compensation Scheme (FSCS) if they have been the victim of bad advice. In the meantime, getting advice or even information from their advisers is likely to prove difficult.
Investors can at least exercise their rights to move to a new IFA that can provide advice and is on a financially secure footing to provide that advice in the future.
Photo credit: Flickr/Michael Kappel
