Opinion  

Counting the burgeoning cost of providing advice

Gill Cardy

Much excitement on the wires as Martin Wheatley, chief executive of the FCA, is reported have expressed “concern over the withdrawal of mass market advice by big banks and insurers”.

He agreed with Andrew Tyrie MP, chairman of the Treasury select committee, that the drop in advice availability “needs to be addressed” and that he (on behalf of the FCA) “could do better”.

If advisers have worked out that it takes five or six hours to provide a fully-advised service which – whisper it quietly – costs money, why is Mr Wheatley mentioning this now as if it is some sort of earth-shattering revelation?

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The various incarnations of the regulator have been told repeatedly by every representative of every organisation ever involved with providing advice to consumers that regulation itself makes the process time-consuming, which means expensive.

Decision trees failed. Simplified products are looking a bit peaky. Stakeholder product sales never got an advantage in spite of being ‘more straightforward’. Focused advice fell at the first hurdle. Web-based services that purport to be independent are being challenged on the grounds of the product choice that sits behind the process.

Services which provide planning, or guidance, or non-regulated advice, find it hard to prove that they are offering services which can be delivered cheaply and compliantly. And not even entrepreneur Ivan Massow can give money to clients without being regulated out of existence.

The record of the banks in providing compliant retail financial advice to their consumers is not sparkling, but to accuse them of ‘sales dressed up as advice’ and use that as an explanation for their withdrawal from the advice market is naive and simplistic.

The process, even for the simplest advice, really does take a minimum of five or six hours. An hour for the first meeting and an hour for the second meeting, leaving four hours to make notes of the meeting, conduct your research, write your suitability letter, prepare all the relevant documentation, complete money laundering checks, process the new business, check everything for accuracy, keep records and ensure payment for services rendered. And, yes, Mr Wheatley, it costs money.

The costs of regulation, the costs of professional indemnity insurance, regulatory fees, FSCS levies and the costs of continuing professional development and strategic management all add to the costs of advice.

And the fact that not even banks, with millions of customer relationships and all that data to mine, can see a way to make it profitable ought to be the loudest wake-up call of 2013.

But only if you are listening.

Gill Cardy is managing director of IFA Centre