CompaniesNov 8 2013

‘You’d be barmy to enter the industry now’

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The firm has been involved in secured finance since before there was a Consumer Credit Act - and even got “heavily involved... like a lot of people” in the 1990s in sub-prime lending, which Mr Broadbent meiotically describes as having “not had the best rides of late”.

Having been active in the market over such a lengthy period and during times of real distress, it is striking to hear the vitriol he reserves for the current shifts in consumer credit regulation as oversight shifts from the Office of Fair Trading to the Financial Conduct Authority.

He states simply: “It’s an appalling mess.”

Mr Broadbent explains that the issue which has provoked the most anger among financial advisers is the transient treatment of the licence, which initially had a lifespan of 15 years, before being shortened to five years and then eventually made “indefinite” by the OFT.

Now, the FCA is issuing interim licences ahead of applying for longer-term licences from the autumn of next year - though at least it belatedly revealed it will be giving advisers back the money they spent on the previous ‘indefinite’ licence.

He adds that there is added frustration at the lack of understanding among the regulators over how particular areas are going to be regulated, with questions about whether particular areas are covered often being passed between the two bodies and no firm answers offered.

I would never encourage anybody relatively young or a graduate to get into financial services

He explains: “They are going through a consultation process at the moment which seems ridiculous... you have to license with the FCA on an interim basis but they don’t know what the rules will be, so actually everybody is pretty much up in the air. The way it is being handled and rushed through is diabolical.

“I actually did refer a question to the FCA consumer credit division about whether I needed a license for a particular activity and they came back and said, ‘we can’t tell you but if you have a look at the OFT site it gives you some ideas’. But the OFT site is that vague that I am not in the least bit surprised that people are confused.”

FTAdviser previously reported that neither the OFT or FCA have offered any clarity over whether financial advisers need a CCL for various post-Retail Distribution Review charging models or ‘debt advice’ and has merely been telling the industry to seek legal advice.

“In my opinion most financial advisers will in some way transgress debt counselling as you can’t really talk to someone about their financial circumstances, investments and various things without touching on what they are paying out for various other things of course.

“The minute an investment adviser says ‘well I had a chat with my client and from an outgoing point of view, I need to discuss his outgoings and what he can afford’, there is a danger they will say well you should be licensed.”

Who wants to be a financial adviser?

This vituperative is perhaps indicative of Mr Broadbent’s demeanor: he says he would not promote the profession to anybody due to squeezed incomes, the “horrendous” amount of regulation, the “huge” cost base needed to start up and, of course, the long-stop lack.

On the matter of regulatory costs in particular, Mr Broadbent says they have risen from “a nominal fee” to 6 per cent of his total turnover in the space of nine years.

“Annual fees to the FCA, FSCS levies and your PI cover - which is going up expedentially and will continue to do so - and your costs of employing a compliance officer externally have risen from pretty much a nominal cost base to even a small one man brokerage probably incurring £4,000 to £5,000 of annual costs as a minimum.

“This might not sound like an awful lot of money but to an individual who is going through a very difficult trading period and is meant to remain solvent to continue trading, to pay out that sort of base before you have actually opened the doors is an awful lot of expenditure for a lot of people.”

Blue Sky Mortgages incurs annual regulatory costs of around £15,000 on income derived from a book size of “only £5m to £6m at any one time”, of which the main costs are the Financial Conduct Authority as well as professional indemnity insurance.

“The PI cover might not be a direct cost from the FCA but the PI cover is an insistence of the FCA so it is ultimately a cost that can be associated with the FCA.

“I would never encourage anybody relatively young or a graduate to get into financial services. I would say go into something else, anything else.

“Why would you want to take on a job that’s not massively at the top end of the scale as far as income is concerned; which has got huge liabilities, more than any other occupation in the world and which you’ve got to have a massive initial cost base simply to keep up with regulation? You’d be barmy to do it.”