I felt a shudder of déjà vu this morning as we published our take on the big story breaking across the advice sector.
A major network has been slapped with unprecedented enforcement action in relation, ultimately, to advice given by members to clients in years past to transfer safely ensconced pension savings into racier - and riskier - alternatives, and/or to invest in unregulated investments of questionable quality.
A fine in the millions of pounds was calculated by the City watchdog as an appropriate punishment for what are clearly the egregious symptoms of a reckless sales culture utterly inconsistent with today’s standards, and still for many a stain on the wider industry’s reputation. There will be a past business review covering tens of thousands of pension transfers in particular; potentially crippling redress will surely follow.
I could easily be talking about Sesame, the UK’s oldest and once largest network, which was fined £6m in 2012 over widespread Keydata advice and which reported losses of £19m for 2013 as it set aside huge sums for likely future compensation flowing out of a review into pension transfers completed over a number of years.
This morning’s story, however, related to big network rival Financial Ltd and its sister company Investments Ltd. For five years between 2008 and 2013 the firms apparently failed to “control” appointed representatives, who engaged in pension transfer and Ucis advice for up to 60,000 end customers that fell well short of required standards.
Fines of £13.2m - £12.6m of which related to Financial Ltd - were stayed on the basis of the firm’s “financial position”. Results on Companies House show the firm made an overall loss of around £28,000 on revenues of close to £31m for the 2012/2013 trading year.
Brian Galvin, chief executive of Financial and Investments, said this morning that the “underlying business remains strong and profitable”.
Eschewing any fine for fear it would have put the firm out of business, the FCA instead used its new powers to, for the first time, ban recruitment. No new ARs or advisers can be employed for four and a half months, down from six due to early settlement.
This can be considered a mercy. I am not convinced, however, it will be enough to save a large network model whose flaws have been exposed by a compliance-centric post-Retail Distribution Review world and the lack of a long-stop to limit liabilities.
Once powerhouses of the sector, network AR numbers have tumbled from 15,604 in 2009 to less than 12,200 as at January 2013, according to data from Imas Corporate Finance. A modest recovery of a couple of hundred since then can be largely attributed to smaller networks such as Sense.
A broader picture of positive profitability for advisers since the RDR came into effect is not replicated in the large networks space. One major network, Intrinsic, has been acquired by a major life and asset management company, while another, Sesame, cannot seemingly tempt prospective buyers to bid.
More worryingly, advice liabilities are rising exponentially due to a perfect storm of no time-bar on complaints, a creeping claims culture, and more exacting contemporary standards that cast a dark shadow over past activities. All of this is happening against the backdrop of a hardening professional indemnity insurance market that has already claimed the scalp of one claims-laden big network, Honister, in the past couple of years.
Networks need to keep a tighter rein on their ARs, and so they proclaim restricted advice as the new zeitgeist. These models often involve the use of necessarily narrow provider panels that have the potential at least to undermine the lofty aims of the RDR project. We’ve had one case of enforcement already, and there must be a risk of more deals being restrospectively deemed unsatisfactory.
All of which goes against the grain of a lot of what we hear from the wider advice community - which is largely doing very well thank you very much, notwithstanding an advice gap, rising fees and a general disenchantment with the regulatory rulers on whose beneficence they depend.
We continue to see independence dominate with more than 75 per cent of advisers, which coincides with anecdotal evidence that more are going it alone with the help of the surfeit of support services now available. Providers such as SimplyBiz continue to increase profit, while even Sesame Bankhall chief Stephen Gazard acknowledges a movement of members from the confines of the Sesame network to a more relaxed relationship through Bankhall.
Despite the clemency shown to Financial Ltd, this all probably accords with the FCA’s broader ambitions.
While advisers bemoan the compliance headache they have since last January, the more onerous professional demands of the brave new world are surely less effectively met within large organisations where the key decision makers are far removed from the client interactions.
Homogenising advice provided within mechanised, product and provider-restricted solutions cannot be the answer, either.
Smaller advice firms that are more nimble and which utilise specialist outsourced support will come ever more to the fore in the years to come. And for clients, this will surely make for better, more bespoke, outcomes.
