Last week’s final moments became suddenly much more interesting when the Financial Conduct Authority responded to criticism by the Association of Professional Financial Advisers.
Apfa had released research which purported to show that 60,000 lower-value clients had been priced out of the advice market as a result of the Retail Distribution Review.
The FCA responded that it “did not recognise the industry that Apfa is describing” - and went on to provide statistics suggesting adviser income has grown by 5 per cent and that most clients were not put off by post-RDR fees.
You will of course note that the FCA’s figures do not directly contradict claims of an advice gap.
Commentators on FTAdviser seemed to agree that the advice gap is serious business.
One said: “It stands to reason that if I have to charge 2-4 hours of my time for some advice and them add on something for risk and profit I will end up with a fee that is unaffordable for many lower end clients.”
Another: “60,000 disenfranchised? That’s a gross underestimate. Add two noughts and you’re probably closer to the mark.”
It may be that the regulator is waiting for results to some of its own research, but with RDR almost a year old now, surely the FCA has had long enough to conduct research? After all, the advice gap is something that was being talked about long before January 2013.
In April, the regulator admitted it had not yet quantified the gap, and in September Martin Wheatley acknowledged the prospect of a possible advice gap was a “concern”.
This week, evidence continued to mount that consumers could have less access to advice as a third of advisers said they may have to cease servicing clients.
According to a report by Action Consulting, one in three advisers admit they have clients who they no longer service “on economic grounds” because they have little or no value, and “may cost more... than they contribute in income”.
So how much evidence does the regulator need before it begins seriously confronting this problem rather than waving it away while mumbling something about web-based service?
Of course, regulated advice is a costly business and advisers have to turn a profit, but the FCA’s remit is to act in the interest of consumers, and with frauds and scam artists as active as ever financial advice is the consumer’s last and best line of defence.
The current solution for lower-value advisers, non-advised ‘DIY’ solutions, can have pernicious consequences, as a damning report on annuities sales from the Financial Services Consumer Panel this week showed.
Don’t bank on it
The banking industry was pilloried yet again this week by regulators on both sides of the Atlantic.
Lloyds Banking Group was subject to the FCA’s largest ever fine for some extremely dodgy practices including awarding bonuses to advisers even after 100 per cent of their sales were found to be unsuitable or potentially unsuitable.
It’s really shocking stuff, but you have to wonder how much hurt the £28m could possibly inflict on a bank that size. After all it amounts to less than 2 per cent of Lloyds’ profit before tax for the first nine months of the year alone - and there are no signs of any individuals taking the blame.
It’s not good for the image of bankers as smug fat-cats is it? They’ve made their money, they have their pensions. Less than two per cent of profits? Let’s pay it out of petty cash and head into town for some Chablis.
Royal Bank of Scotland meanwhile - naughty naughty - was fined £61m by US authorities for not only breaking sanctions against Iran, Sudan, Burma and Cuba but for hiding the fact they were doing so.
The cherry on this sour-tasting cake was provided yesterday (13 December) when the FCA fined former Bradford and Bingley director Christopher Willford £30k for failing to provide accurate information to the board prior to the bank’s collapse.
It had been intending to issue a £100,000 fine but after some wrangling at the Upper Tribunal reduced the penalty on the basis of oral evidence heard.
Either way, it’s another hit to the banking sector and financial services generally. Are all bankers like this? We’re starting to run out of good ones.
Do clients even care about the cost of clean shares?
In the debate about dirty, clean and superclean share classes, FTAdviser has often shed light on situations where so-called superclean share classes are more expensive than their bundled counterparts.
However, this week we heard a couple of rejoinders to that.
On Monday FTAdviser sister publication reported comments from Cofunds saying advisers must focus on value, not who is cheapest.
Cofunds might have a point, but it’s interesting to hear this from that firm considering it figured prominently when FTAdviser first raised the spectre of increasingly-expensive clean share classes.
It’s slightly more interesting perhaps coming from an adviser. When I interviewed him this week, Peter Adcock told me the price of investing came only third or fourth out of five in terms of client priority, behind service and meeting objectives.
Several commentators strongly disagreed with him, but I do wonder if he might have a point.
So do clients not care? Surely price must be of some concern but I suppose if one clean share class is more expensive it might not raise too many questions if the portfolio taken as a whole was cheaper or equally expensive overall.
