Speaking strong words of deﬁance
When the dust settles and the RDR is fully implemented in January 2013, just how many IFAs will be left?
It is a question many of us have pondered and FSA chief executive Hector Sants and Sheila Nicoll, director of conduct policy at the FSA, tried to answer it under questioning from the Treasury select committee.
The two senior FSA executives predicted that some 6100 advisers could quit. I am not so sure.
I certainly agree with Mr Sants and Ms Nicoll that the RDR will mean “structural change” for the industry but it has been evident to me for a long time that there are nowhere near enough advisers to meet the potential demand for financial advice in the UK, which is still woefully under-provisioned in terms of financial adviser numbers.
A key question here is how many IFAs and other types of adviser are there in the UK? It is a very difficult question to answer.
The FSA has talked about a figure of 48,000 advisers but that will include both authorised mortgage brokers and IFAs. The most reliable estimate I have seen is that there are somewhere between 20,000 and 25,000 true IFAs, a figure which, if correct, has barely changed in 20 years. Indeed it is not much different from the days when the Financial Services Act 1986 heralded the dawn of the independent financial advice sector.
Before then, while there were wealth managers, private client stockbrokers and many others working as, in effect IFAs, the term and the offering had never been defined in law.
If Mr Sants and Ms Nicoll are right and the total number of authorised advisers will fall by over 6000, then that will clearly hit IFA numbers.
What is worse is that it will also mean, again if they are correct, that the number of clients these IFAs can service will drop dramatically.
To maintain their independent status IFAs will need to shift inexorably over the next two years to professional status and fee-charging and away from commission-based remuneration.
In my many years of covering the retail finance sector, one of my most asked questions of IFAs has always been: “How many clients do you have?”
Most commission-based IFAs have always quoted a figure of between 500 and 2000. To be fair, most of these are just names they once flogged a life policy to but they may have always seen them as prospects – sorry, clients.
Fee-based advisers and financial planners are a different kettle of fish.
When I have asked them the same questions the answer has typically been between 80 and 200 and these are clients they regularly talk to and “service” with regular advice and portfolio management.
In other words, the number of advisers a typical IFA will deal with post-RDR and post-transition to a fee-based model is likely to fall hugely and with it the capacity of the IFA sector to service all the clients it currently caters for.