Debt-heavy IFAs 'serious risk' to healthy competition

One in ten IFAs has become a “serious threat” to pricing levels next year as a result of high risk debt-heavy 2008 strategies, research suggests.

According to a 2009 forecast for the UK IFA market by Plimsoll, more than 160 firms are now deeply indebted after investing heavily and are “desperate to keep busy”.

The report suggests companies with unhealthy balance sheets could be forced to up the cost of their services, potentially forcing other firms to react and creating an unfair environment for consumers.

“If 2008 has taught us anything,” it concludes, “it is that using other people’s money to run your company is a risky business.”

Meanwhile, up to 5,000 industry jobs could go, the study suggests, as firms look to reduce costs in line with sales, while a quarter of IFA company directors will exceed retirement age in 2009.

Plimsoll says the “high risk” strategy of some firms in 2008 is in stark contrast to the 834 companies that elected to run their businesses debt free, many carrying large cash surpluses.

It says businesses are likely to act more responsibly in 2009 as banks and institutions tighten their lending policies.

“Against this backdrop, finance directors and executives need to think very carefully about their finance needs for next year and plan early,” it concludes.

According to Plimsoll, 2009 will see 470 of the 2,900 directors working in the IFA market exceed retirement age, potentially sparking a “wave of significant retirements” and paving the way for further consolidation.

As sales decline companies will need to work hard to maintain their competitiveness, it adds, pointing to estimates suggesting 5,000 jobs could be under threat as businesses come under pressure.

However, Plimsoll says productivity levels have been increasing, with sales per employee figures rising from £77,900 per person two years ago to just over £88,600 in 2008. It concludes managers should be setting their businesses up to deliver at least £92,000 sales per employee in 2009.

“2009 will be a very exciting year for the industry. It will be a time to choose your enemy wisely,” the report concludes.

“Going on the offensive may well be the best defence. Key to this is the successful targeting of your weakened, low margin and heavily indebted competitors, their failure will be vital to your own company’s success.”

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Scott Sinclair
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scott.sinclair@incisivemedia.com