These people have, traditionally, been served by an army of more than 30,000 advisers who are authorised and regulated by the regulator, formerly the FSA and now the Financial Conduct Authority.
Many of them had successful careers and built up a loyal client base to serve their local communities. However, statistics indicate that, as some had predicted, the numbers have fallen.
The combination of economic woes at home and abroad and the retail distribution review, which came into force on 1 January, have created seismic shifts in the way people pay for financial advice, and in the way that advisers run their businesses.
RDR has changed the industry landscape. You only have to read the national and trade newspapers to see stories of adviser firms selling up as a result of the higher qualifications threshold and downward pressures on profitability resulting from RDR.
When RDR was first mooted back at Gleneagles, the aim was to help bring better quality advice to more people in the UK. Even last year, the then FSA said the reason behind the fledgling Money Advice Service was to help reach the wider population, citing that 70 per cent of the UK had no access to advice at all.
But the fabled Mas has failed to deliver, despite pouring money into its ‘Ask Ma’ campaign, and drastic cuts by banks to advice services has led to the number of advisers employed by banks and building societies to fall by 44.5 per cent from 8658 to 4809 at the start of the year.
It seems more people are left with fewer advisers under RDR, not more. Is this just nay saying for the sake of it? Sadly not. The figures speak for themselves. In 2010 a study by consultancy Ernst & Young estimated that the number of registered individuals would fall from 30,000 to nearer 20,000 by 2015 – a 33 per cent decline.
Many have said this gap is too large and that new blood is needed by the industry. But just a few weeks ago Martin Wheatley, chief executive of the FCA, admitted there had been a 13 per cent drop in the number of retail investment advisers since last summer.
He said 31,132 advisers were qualified as of December 2012 and had received their statement of professional standing as required under RDR rules.
This was a significant drop on the regulator’s RDR readiness survey revealed in February this year when it showed there had been 35,899 retail investment advisers as of late summer 2012 – a fall of 11.5 per cent compared to summer 2011.
The decline is happening and I think we know among which sort of advisers. Last year independent research was commissioned into the reasons why advisers were buying and selling their businesses.
Of the reasons for selling 96 out of 150 said they were going to retire. Of those seeking to sell, 68 per cent were sole traders who no longer felt confident or desired to continue operating in this environment.
If the Ernst & Young prediction was correct there seem few things to stop the current trajectory of depletion. The economic uncertainty prevails, business taxation is high and becoming tighter with VAT rules on service, and the changing business models ushered in by RDR has caused headaches for firms.
This is not about size as many smaller concerns have been busy working out their business plans and I have spoken with many small advisory firms which have been recruiting to boost their propositions.
Success does not equate with volume of advisers or turnover. Consider the case of one of the largest networks which collapsed last year because of an inability to get professional indemnity insurance.
Yet some tiny regional firms have brought in a profit and have got their proposition just right. Many have turned to technology, such as Skype or cloud-based services, to help reach a wider range of clients at a lower cost to them and the customer.
There is new blood entering the industry. Universities have signed memoranda of understanding with advisory networks to help boost the number of graduates seeking a career in financial advisory services.
National advisory firms have set up graduate training schemes or have helped paraplanners to obtain R01 and step up in the industry. And there are several instances of children who have grown up and are studying with a view to taking over their parents’ advisory practices.
Fresh talent is helping to stem the decline in the number of advisers and they join without any legacy or knowledge of how things were, which could be refreshing. It is a brand new start as this post-RDR world – a no-commission world – is all that they will know.
However it takes years to build experience and that experience is what often engenders trust. Without either of these things it will be hard for even the most talented and qualified young adviser to gain the confidence of clients.
It is that experience and trust that has been seeping out of the industry as advisers retire or seek a career outside financial services.
It is not all doom and gloom but if the regulator considers that RDR has instantly provided more people with better access to financial advice, it is grossly mistaken. The advice pool has shrunk and will continue to do so, even if it is at a slower rate than Ernst & Young prophesied.
RDR has reshaped the way the industry thinks and acts, boosted the perception of professionalism and created some natural evolution in the market.
Optimistically this could mean that although the talent pool is smaller in reach, it is deeper in knowledge and expertise and does things in a different way.
But whether or not it is able to serve the ‘70 per cent unadvised’ figure is a completely different story.
Steve Hagues is managing director of Retiring IFA
Key points
The number of advisers employed by banks and building societies has fallen by 44.5 per cent from 8658 to 4809 at the start of the year.
Research into the reasons why advisers were buying and selling their businesses found that 96 out of 150 said they were going to retire.
RDR has reshaped the way the industry thinks and acts and boosted the perception of professionalism
Chronology
September 2012
• FSA figures show that only 76 per cent – 27,400 – of advisers hold a level-four qualification and have completed the necessary gap-fill to operate under the new rules.
• A further 10 per cent – 3700 out of approximately 37,000 advisers – are still waiting for the results of their final exams.
November 2012
• FSA estimates 32,000 retail investment advisers would be RDR-ready
January 2013
Chartered Insurance Institute said it had issued 21,152 statements of professional standing
February 2013
FSA RDR readiness survey reports 35,899 retail investment advisers, a fall of 11.5 per cent compared to summer 2011.
March 2013
FSA admits 13 per cent fall in number of advisers
Source: FSA/FCA
