There is no doubt these have been grim times for many financial advisers.
Battered by the economic downturn, coshed by RDR, beset by never-ending regulatory changes – it is no wonder many, thousands by some counts, have called it a day.
The question is where will it end? According to Standard Life, quite soon, or to be more accurate it believes the IFA sector is too small and will have to grow to meet the demand for services. It estimates a 20 per cent shortfall in the number of advisers.
While I am sceptical about some of its case it is worth examining Standard Life’s argument. It uses Office for National Statistics data which suggests, according to the company, that thousands of professional advisers are needed to serve the baby-boomer generation who are at or near retirement.
ONS data, according to the company, shows that the number of 55 year olds and over in the UK with more than £100,000 in financial wealth is around 3.8m people. Standard Life reckons that in the new post-RDR regime financial advisers are likely to be actively servicing, on average, up to 150 clients each post-RDR – a 150:1 ratio. Standard Life’s head of adviser and investment proposition, Eddy Reynolds, says that given the most recent FCA figures show there are 20,453 independent financial advisers in the UK, the result is a shortage of around 5000 advisers to meet the potential advice demand.
It gets better, according to Standard Life. Many commentators have concentrated on the so-called ‘advice gap’ – the number of consumers unable to afford the fees of the remaining IFAs.
Standard Life says in reality there is an ‘adviser gap’ – a shortage of advisers able to service the high net-worth and mass affluent markets. Wishful thinking, perhaps, but Standard Life estimates that this market could be 5m strong although its definition of high net-worth is rather wide, encompassing anyone aged over 45 with £100,000 in financial wealth.
The crux of the demand will come from middle-aged clients as they approach retirement and “turn to a financial adviser”, says Standard Life. Maybe they will, maybe they will not, but it is an interesting hypothesis. If Standard Life is correct then another 12,674 advisers will be needed in the next 10 years.
Mr Reynolds is quoted as saying: “The belief that there is a decline in potential demand for the financial adviser market couldn’t be further from the truth. There are a significant number of people aged over 45 who are asset rich and the financial adviser market needs to grow in order to match the demand for advice that will inevitably be coming in future years.”
In principle, I agree with him although this leaves aside the not unreasonable question of where these advisers will come from, a major challenge for the industry which often struggles to attract graduates.