In a 16-page report, the Association of Professional Financial Advisers demands the Financial Conduct Authority reduces regulatory change to stop the industry losing more financial advisers.
According to the report, progress had been made on some of the objectives of the Retail Distribution Review, but that to meet the others the FCA should avoid further major regulatory change, other than that already planned.
The report stated when the number of advisers was estimated by then regulator, the Financial Services Authority in 2011, there were more than 40,566 advisers in the market, 25,616 of whom worked for financial advice firms.
The trade association’s latest study, published late yesterday (25 June) revealed by January 2014 the FCA’s own statistics showed this had dropped to 31,220 advisers in total, with 21,881 working in financial advice firms.
While the biggest drop was in the bank and building society sectors – about 60 per cent - there was also a significant fall of nearly 15 per cent in the number working for financial advice firms.
However, the number of financial advice firms registered with the FCA at 31 December 2013 was 14,387, an increase of 5 per cent since 2011.
Most of the increase over that period was in the number of appointed representatives, which Apfa stated represented about 65 per cent of the market.
Although the number of advisers has fallen, Apfa reported revenue from regulated business for financial advice firms has remained steady, at around £3.8bn a year, for the period from 2011 through to 2013.
Annual profits before tax and dividends climbed steadily from £807m to £953m over the same period, Apfa reported.
However, Apfa argued these figures may not fully reflect the costs of running financial adviser firms, as many smaller director-owned businesses will pay themselves in dividends.
Looking at the figures for retained profits, Apfa found the picture was not quite as good, with total retained profits across the sector falling from £136m in 2011 to £100m in 2012, before recovering slightly to £128m in 2013.
The report also looked at the impact of the RDR versus the FCA’s desired outcome.
It concluded there are now two distinct groups of people seeking advice on investments or pensions.
The first, who can afford to pay for advice and are willing to do so, have access to a more professional and more transparent service from better qualified advisers as a result of the changes brought about by RDR.
However, there is also a group of consumers for whom advice is not economic given the small amounts they have available to invest, who are increasingly reliant on using the internet to find information and invest direct.
Apfa warned these people may not realise the reduced protection they have, and could make investment decisions that leave them worse off as a result.
Chris Hannant, director general of Apfa, warned there are still a number of advisers with “serious concerns about whether they will be able to continue with their current business model given the significant costs of running an advice firm, and particularly the increasing cost of regulation”.
He said: “Further regulatory change, such as that planned for platforms and capital adequacy measures, will also have a major impact on firms’ financial sustainability.
“RDR has had a positive impact in some areas, for instance improving transparency and providing the catalyst for advisers to become better qualified. However, there are still a number of areas where it seems to be less successful.
“For instance, while there is more disclosure by advisers, it is not yet clear whether consumers really understand the different types of services and related costs and levels of protection available.
“In addition, the independent and restricted definitions do not seem to be working. We believe a simpler, more instinctive definition of independence along the lines being adopted by Europe would be useful.”
