OpinionMay 31 2013

How do we stop asphyxiation of advice sector?

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If there is one thing that gets my goat it is the tendency towards wallowing that is persistently evident across the adviser sector.

Over the past five months - and, frankly, for a long time before that - trade titles aimed at financial advisers have been regularly carrying stories predicting a vertiginous drop in the number of advisers post-Retail Distribution Review.

Often these articles are based on little more than a consultancy firm’s subjective observations or surveys with modest and barely representative sample sizes. Why are they run so regularly? Because they never fail to attract a substantial audience.

We at FTAdviser have obviously run our fair share of such studies where we’ve felt the figures are credible enough to deserve reporting, but we’ve limited our output of those that are rooted in conjecture.

This is not an attempt to stem the flow of bad news. It goes without saying that the fortunes of this title are inexorably tied to those of the sector which provides our audience, but we seek to live by the Financial Times’ guiding principle of ‘without fear or favour’ and report objectively on what is important and, critically, justified.

The advice sector is being threatened by a paucity of new blood that has the potential to starve it out of existence in the next decade or two

To this end we’ve balanced our output of these eschatological exaltations with an array of positive stories that are equally as regularly coming to the fore post-RDR.

Thus we’ve led with research such as that published by comparison website VouchedFor, which showed that a huge proportion of 223 surveyed advisers are reporting a big increase in clients - and especially clients that have never before sought advice - post-2012.

Similarly, we’ve highlighted numerous examples of adviser firms seeking to grow due to an increase in business. Whether through acquisition or organically, expansion is definitively one of the key post-RDR trends.

Of course, the extent to which all of this is a result of the rule changes is debateable. To quote another FT aphorism used in the brand’s marketing: “We live in financial times”.

The ever-increasing need to prepare financially for the future, coupled with the growing awareness of product complexity and the prevalence of industry scandals is giving many people more reason than ever to seek advice.

Indeed, in the words of Malcolm Streatfield, chief executive of national advisory services business Lighthouse Group, with whom I had an illuminating chat over lunch recently, we could be looking at a “golden horizon” for the industry.

In spite of my genuine belief in this positive sentiment, however, I do share with Mr Streatfield a major concern about the future of this undeniably vital sector.

To put it bluntly: the advice sector is being asphyxiated. Its vitality is being threatened by a paucity of new blood that has the potential to starve it out of existence in the next decade or two.

The major home insurance and life company direct sales forces from which many of the first generation of advisers hailed have long since become extinct, and the bancassurance arms at which many of the current generation cut their teeth are going the same way. Where will the next generation of advisers come from?

Now I’m a believer in the fact that the professionalism brought about by RDR will make the sector more attractive to new graduates. The proliferation of degree programmes specifically geared to financial services and advice in particular is testament to the education sector responding to demand for a formalised entry route for the young and gifted.

The problem, though, is where will these graduates go? As Mr Streatfield explained to me during our discussion, the economics of bringing in a graduate that cannot provide advice until they have completed the lengthy process of becoming level 4 qualified do not stack up for most firms.

There will inevitably be a few examples of firms taking on graduates that are to celebrated - and as above we’ve covered a fair few ourselves. But the volume coming through is likely to be small.

We appear to have demand from consumers for advice and there is reason to believe we have, or could generate, appetite among graduates to become advisers, but what we do not have is a mechansim to marry these two complementary imperatives in the form of jobs.

So what is the answer?

I confess I do not know. Mr Streatfield suggested that what we need is a “simplified” advice regime endorsed by, and operated within a framework set by, the regulator.

He described a system that would allow certain advice processes - particularly those that utilise online tools that are growing in popularity among younger consumers and professionals alike - to be carried out under supervision by new advisers while they spent two to three years studying to become level four qualified.

This, he argued, would provide a natural progression for young graduates into advice and then onto full-service advice once fully qualified. It would also solve the conundrum of how to make taking on a graduate economically viable for firms.

I’d be interested to know what advisers think of this solution? Would it work, and would the regulator ever buy into this?

Otherwise, what other solutions might there be?