FCA vs Apfa: Where does the truth lie in RDR turf war?

Michael Trudeau

In case you missed it, there was some surprisingly heated word-slinging last week between the Association of Professional Advisers and the Financial Conduct Authority over whether or not the Retail Distribution Review has really reduced access to advice.

First up, Apfa released some research conducted by NMG which it said suggested a whopping 60,000 lower-value clients have been priced out of advice thanks to the RDR.

This was based on 47 per cent of the 328 investment advisers questioned stating they had turned away clients on the basis that the cost of providing advice would not give the clients value for money. Around 40 per cent of those advisers said they had turned away more than five clients, with an average client refusal rate of 5.8 per firm overall.

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There are now, according to FCA figures as at the end of July, just over 32,000 intermediaries with a statement of professional standing to give RDR investment advice, of which around 21,000 work at financial advice firms.

Apfa applied the 47 per cent figure of firms that had admitted turning away clients to this latter number and multiplied it by the 5.8 “turnaway rate”, which produces a total of more than 57,000 prospective clients that are now apparently being denied access to advice post-RDR.

This follows research from Schroders (also of a sample of 328 advisers it had a “direct relationship” with, oddly) which found that 14 per cent had formally asked smaller clients to leave their firm in the past 12 months.

The prosecution rests, Apfa might have said.

However, the regulator came back swinging on Friday, saying “we don’t recognise the industry that Apfa is describing”.

It went on to say that not only have adviser numbers risen post-RDR from 31,000 in January, but the average adviser income has also gone up by 5 per cent in 2013. The research, which has yet to be published in full, was conducted by none other than NMG.

Wow, so the same research firm is producing completely different conclusions on the post-RDR advice market?

That’s odd - or is it? In reality, none of these numbers are mutually exclusive. There are lies, there are damn lies and there are statistics.

Apfa says 60,000 are left without access to advice, the FCA responds that there are marginally more advisers and that revenues are increasing. Note the disparity: the regulator specifically did not come out directly contradicting Apfa’s findings.

Considering some predictions of a 50 per cent fall in advisers this year, that we’re actually up due to some laggards re-entering the market and probably flat on an underlying basis is fairly positive. But we are still 20 per cent down on the 40,000+ advisers we had pre-RDR and that means advice is more scarce.

Moreover, while the revenue figure quoted by the FCA would seem to chime with results from many (mostly larger) advice firms which have reported increased adviser productivity and margins, this does not mean to say that low-value clients specifically are still being being advised at the same rate.