As we enter 2016, one of the major obstacles standing in the way of growth in the financial advice sector is a sheer lack of the raw material – financial advisers themselves.
Despite recent statistics showing welcome growth – with adviser numbers up by just over 1,000 in the past year from 21,496 to 22,557 after years of decline – the overall number of advisers remains woefully inadequate to meet future demand.
There is already a shortage of paraplanners, with recruitment agencies crying out for qualified paraplanning professionals, many of whom are finding their salaries soaring as a result. Financial planners, wealth managers and well-qualified financial advisers are also in demand.
Comparisons with recent growth in other professions is not good. According to the Solicitors Regulation Authority, the number of practising solicitors rose from 115,487 in 2009 to 136,940 in November 2015.
The number of accountants working across the various accountancy bodies stands at more than 327,000 in the UK and Republic of Ireland (2014 figure). The Institute of Chartered Accountants in England and Wales had 114,468 members in 2009. In 2013 it had 120,513.
According to the Architects Registration Board there are now over 34,500 registered architects, and the term ‘architect’ is protected in law. The term ‘financial planner’ is still not protected by law in the UK.
Across the professions, despite the impact of the 2008 financial crisis, the picture is one of growth, and many have seen strong increases in numbers in recent years as consumers and businesses have sought professional advice from well-qualified and regulated people.
The same cannot be said – at least not yet – for UK financial advisers. Indeed the dismal current number, hovering just over 20,000, is undoubtedly one of the single biggest barriers to future expansion.
There are some green shoots. Numbers are up a bit; firms are employing more apprentices; there is a greater focus on graduate recruitment; paraplanners are being taken on; and so on, but the changes are glacially slow compared with other professions which are powering ahead. Financial advice is being left behind.
Some will say the issues are down to the ‘cottage industry’ nature of the financial adviser sector, but many solicitors also work in this way, in relatively small firms, and it has not held them back. It is a lame excuse.
One factor which may have helped other professions such as the legal profession has been their ability to add new services. Many have prospered on rapid growth in claims and accident litigation handling. I know some have expanded into estate agency, and divorce work has been a major boost for many firms. They have also grasped the opportunity to advertise. If you pick up your local newspaper I doubt you will miss the advertisements for local legal firms. This was unknown 20 years ago.
Financial advisers, on the other hand, have gone backwards. Seen any adverts for financial advisers lately? I doubt it. I am old enough to remember the days of Camifa (the Campaign for Independent Financial Advice) advertising on TV back in the 1980s. It seems like a different world.
It is true that some advisory firms have begun to venture into new areas – for example, launching auto-enrolment pension services for businesses – and that is welcome. Technology could also be a boon to growth with robo-advice opportunities on the horizon.
It seems unlikely, though, that we will see a pick-up in adviser numbers until something significant happens, and that probably needs to be two-fold: an industry-wide campaign to expand the number of financial advisers and the investment of large institutions in financial advice firms because they see financial advice as a profitable area in which to invest, not a lame duck profession.
Financial advice also needs to break out of its cottage industry mentality and shout a bit if it is ever going to move forward. Many advisers offer a great service but too few consumers know about it.
Financial advice needs to beak out of its ‘cottage industry’ mentality and shout a bit if it is ever going to move forwardI have deliberately avoided, here, blaming over-regulation for holding back growth. Solicitors see strong regulation as a business benefit, not a handicap. It is too easy to blame excessive regulation for stunting growth and that is just not good enough.
Ultimately growth will be driven by consumer demand, and consumers must understand, want and need the benefits of financial advice. This means that financial advisers have to offer a service that people want to buy at the right price. Currently the impression I get from many advisers I talk to is that while their own clients cherish their services it is very much an exclusive club; a well-kept secret. That has to end.
The professional and trade bodies in this area also have to do more to unite to promote financial advice consistently and with some realistic targets for growth.
Much more needs to be done by the financial advice sector to break out of its current cycle of stagnation. Let us hope that this will be a year of progress.
Kevin O’Donnell is a financial writer and journalist
You said:
RAFA, in response to the news about the financial adviser who suffered an adverse decision by Fos over a client’s Bulgarian property investment (FA, 17 December)
“Discontinue the Fos fee and instead IFA firms set up a fighting fund to take on these spurious judgements made by the very inexperienced Fos service.
“We must remember, there are no rules or guidelines by which these bureaucrats operate – you’re kidding yourselves to believe otherwise. It’s simply who you get on the day and if they’ve got out of bed on the right side.”
