European IFA trade body FECIF has warned that adviser numbers will drop off by around 22 per cent due to the ‘sunset clause’, however other trade bodies have said this figures is on the high side.
The ‘sunset clause’, to come in from April 2016, means that all new and existing business will have to be charged on a platform-charge basis, with only unit rebates to facilitate discounts permitted.
Paul Stanfield, chief executive of FECIF, warned that this will drive the largest drop-off in adviser numbers since the Retail Distribution Review.
Speaking to FTAdviser, he said: “A lot of trail commission was agreed on advisers getting less commission upfront and getting paid in the long-term.”
In his latest blog, Mr Stanfield wrote: “The UK advisory sector is still relatively large but faces some serious challenges, some of which have been created by the latter stages of Retail Distribution Review.
“Adviser numbers have already dropped by 12 per cent since RDR was introduced but there are serious concerns that the loss of past trail commission – which is scheduled to occur in April next year - will reduce adviser numbers by another 22 per cent, at least.
“This is perhaps a situation that other European regulators should strongly consider, when assessing the possible effects of a commission ban in their respective countries?”
Keith Richards, chief executive of the Personal Finance Society, said he thinks advisers are better prepared for the sunset clause than “some scaremongers would have us believe.”
He said: “There will be some impact and there will be some residual trail that has not been converted to adviser charging.”
Steve Gazzard, chief executive of the Institute of Financial Planning, said 22 per cent was a “bit on the high side but there will be some businesses that choose to exit.”
He questioned the business capabilities of those who would choose to go as they had a few years advanced warning that the sunset clause was coming in and therefore had a chance to change their business models.
Mr Gazzard added while adviser numbers were down since the introduction of the RDR, advice had become more efficient with some intermediaries becoming para-planners post-2012.
He said: “The bigger issue is not the number of advisers out there but their efficiency in terms of dealing with a number of clients.”
Mr Stanfield made his comments about dwindling UK adviser numbers as part of a message of support for the new trade association Libertatem, which was set up by former director-general of The IFA Association Garry Heath.
Mr Stanfield is a member of Mr Heath’s group, which aims to represent 20 per cent of IFA firms within the first 12 months and will raise funding through membership growth in adviser businesses and industry sponsorship.
“Garry Heath believes that, unless the UK sector creates a trade association that is willing to push back and promote independence/advice, adviser numbers will continue to drop whilst regulatory costs, which have increased four-fold, will be shared amongst a decreasing number of advisers.
“This could lead to a spiral of decline in which the fixed costs of regulation and compensation are chargeable to a much smaller number of firms.
“Increased regulatory costs are heading the way of all EU countries – if adviser and intermediary numbers face a similar experience to the UK then those companies that welcome the changes may need to reconsider if the costs of doing business in the future may make it impossible for them to operate.”
Mr Stanfield’s comments also came as Treasury and the Financial Conduct Authority launched a review to examine how to plug the advice gap.
The two organisations have spelt out that the review, which will gather evidence this summer, will examine the regulatory or other barriers firms may face in giving advice and how to overcome them.
This will include the interplay between the regulatory framework for advice and the role of the Financial Ombudsman Service and the Financial Services Compensation Scheme in redress.
emma.hughes@ft.com
