OpinionMay 28 2013

Financial advisers are not quite extinct yet

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There seems to be a lot of impatience around the RDR.

The FCA says it is interested in looking at whether the new advice models are delivering for consumers – after it has checked everyone is following the rules, of course.

To be fair to the new regulator, the first move makes a huge amount of sense. In fact, to do otherwise would be a dereliction. The second feels a little more premature. Certainly, for the middle chunk of the adviser market, the part that still needed to make substantial if not quite fundamental changes around 12 months ago, things are surely still bedding in.

One can see why regulators might be a little impatient, however. All the headlines have been about a precipitous fall in bank adviser numbers, and a significant fall in adviser numbers, perhaps to 20,000 or fewer by the end of year. This is all an inexact science, because it is very difficult to know if the numbers would have fallen anyway or whether many advisers simply brought forward retirement or decided the time was right to sell up. In any case, this could all amount to a drop of a third.

We are a long way from knowing what is really going to happen to business flows. John Lappin

One can imagine why the regulator might want to be able to demonstrate that the RDR is delivering the good bits – better outcomes, better alignment and less, hopefully much less, misselling – because MPs, who warned that the RDR could be going too far and too fast a couple of years ago, will start to say they are being proved right.

Something in the credit column as well as the debit column would help, but there is no point in looking too soon. Of course, for the regulator, the big risk must be that it declares everything in the advice garden is rosy, only for another scandal to blow up.

In a similar vein, fund firms cannot be too sure the business patterns they are witnessing are necessarily permanent. Where providers or fund firms’ distribution partners had previously run a ‘high commission’ strategy, they may have found business has dropped off significantly. That, after all, was the point of the RDR. But for most, moving too early must surely carry risks.

IFA numbers have fallen, but talk to adviser firm leaders and they say most of those who have fallen away were not big writers of investment or pension business. They say they are picking up business from those bank advisers, and who is to say what sort of solutions they may want to offer them with help from fund firms.