FCA fumbles the baton, advice sector has growing room

Would you credit it?

The most hotly debated story on FTAdviser this week was our revelation on Wednesday that both the incumbent consumer credit regulator and its soon-to-be successor have no real idea which advisers require a consumer credit licence.

Prompted by a chorus of confusion on a thread in an advisory forum - itself precipitated by the Financial Conduct Authority sending out the first wave of bills for interim consumer credit levies for when it takes over regulation of the sector in April 2014 - FTAdviser asked the City watchdog when advisory activities would trigger the requirement for a licence.

The response was less than useful. Any adviser involved in mortgages or debt advice was likely to need a licence, it said, but for specifics we would need to speak to the existing regulator, the Office for Fair Trading. In short the FCA said: “If you had a licence with them, you’ll need one with us”.

Great. So we spoke to the OFT - and not for the first time this year. It said advisers might need one, but the licences are decided on a “case-by-case basis” and there is “no one size fits all answer”. In the end they simply said advisers should seek “legal advice”.

Moreover, judging by the comments on the story many are not even clear on which mortgage activities, for example, might trigger the need for a licence - residential first-charges mortgages don’t seem to count, but buy-to-let and remortgages do? And when the hell is one officially providing ‘debt advice’ when all advisers would touch on this if it came up with a client?

The situation seems to me to be a complete farce - and the fun doesn’t stop there, either.

Those interim charges - £150 for a sole trader and £350 for “most other firms” to get a licence to October 2014, when you’ll have to pay again to get a full three-year licence - are being levied despite many advisers having already paid to get ‘lifetime’ cover with the OFT.

The OFT has not yet confirmed if it will rebate for this egregious ‘double charging’. Doing so would at least be a start to ameliorating advisory discontent.

Back in the RDR

On the back of this, yesterday (25 July) the FCA published the findings of its first thematic review into Retail Distribution Review compliance among advisory firms in the first six months post-implementation.

In a paper that struck a truculent tone, the FCA detailed a number of common failings, but what struck me most was the fact that most of these perceived aberrations related to areas where the rules were so ill-defined that failing to meet them was inexorable.

The FCA criticised restricted advisers for not using the term ‘restricted’ when describing their services - it has never stated in rules that I can find that they need to - and castigated independent advisers for using a single platform for the majority of business - it’s rules explicitly stated this was possible, merely that proving independence might be tricky.

It also singled out some firms’ charging disclosure for not showing enough examples in cash equivalents.

I suppose at least here the outcome of the review will be greater clarity on what is expected from firms, it’s just a shame that its taken years and a new threat of enforcement against the unfortunate ‘offenders’ to get here.

How big is your sector?

The other major talking point this week was prompted by two related but unconnected pieces of research published on Tuesday, both of which proclaimed high demand for advice.

The first, a YouGov poll conducted among more than 1,000 people on behalf of Axa Wealth, found that an increasing number of people that have never before sought advice are likely to do so in the future.

One in five stated they would likely break their advice duck, in particular to help prepare for retirement, adding to the roughly one in six that have sought advice previously and will do so again.

Hot on its heels came a study from Standard Life, which confidently stated that the UK needs another 5,000 advisers than it has right now, based on some ropey number crunching that we’d need 25,000 advisers at 150 clients-a-pop to service the 3.8m over 55s with more than £100,000 to invest.

The numbers are sketchy - and not least because the perceived ‘shortfall’ is based on the sector boasting just 20,453 advisers as at December 2012, according to FCA.

Actually this is just the number employed at firms whose primary business is ‘financial advice’; there were actually 31,132 individuals with an RDR statement of professional standing to advise under the new rules.

My main contention with the numbers is the focus on wealthier clients. Why do only those with £100,000 to invest make suitable clients for advisers?

According to data from adviser review website Vouchedfor.co.uk, less than a third of advisers exclusively service clients of this wealth level - and we’ve seen plenty of anecdotal evidence from intermediaries we speak to that there is a viable audience substantially below this level.

The good news is that if I, along with all those other advisers, am right, the size of the advice sector could be many times what it is now comfortably.

As a comparison, as one of the well-known IFA Twitterati said in conversation with FTAdviser this week, the number of accountants in the UK reaches well into six figures.