Away from the troubles of the advice profession, in his chosen sector specialism of protection he has witnessed the savings gap spiral to an estimated £2,300bn and concern over the lack of protection taken out in the UK grow.
However, for Mr Lakey, partner at Highclere Financial Services, the travails of advisers and the paucity of saving in the UK are symbiotic, with the latter being fuelled by a near 99 per cent drop in the protection advice market.
Mr Lakey says he would be “surprised” if there were more than 3,000 specialist protection advisers in the UK, adding he may well be “overestimating”. In contrast, he says 30 years ago virtually all of the 250,000-strong advice market sold protection.
He puts part of this down to the general drop in adviser numbers as well as general shift towards ‘wealth management’.
Recent FCA figures show there are 32,690 individuals authorised to give investment advice - down 15 per cent in two years - 21,881 of which work at advice firms. Advisers that do protection but no investments or protection are not required to be authorised under the RDR rules; there are no figures on the number of such intermediaries in the market.
“Over 20 to 30 years we have found the number of advisers has shrunk by 90 per cent, so now we have 21,800 financial advisers and many of them are wealth managers and their primary function, as they see it, is to deal with investments and maybe some pensions. I talk to a lot of wealth managers and they don’t deal with protection as it doesn’t fit into their model.
“It [protection] was the main area: to make sure you are insured. Pensions weren’t a big deal until later and critical illness insurance didn’t even exist then.”
Mr Lakey added there are three kinds of protection advisers in the market: those that don’t do any protection at all, those that do loads “like me”, and those that “dabble” in the market.
“Now it’s only the person like me who probably focuses on looking for new protection business. Some won’t look for it at all and the guy that does a bit of this and that is probably aiming to do investments and pensions and will do protection if arranging a mortgage or if someone asks for it.
“As a consequence protection sales are massively down – each year there’s a £2.3trn gap and it’s going to get wider - of course it will as there are less people in this and it’s what people need but don’t want as you are buying something intangible.”
Mr Lakey set up a website, CI Expert, two years ago to empower advisers to do a “true head to head comparison” of critical illness policies.
“Consumers need to get specialist advice from a specialist protection adviser,” he adds.
‘Figures can lie’
Mr Lakey was not a fan of the RDR, the most recent cause of adviser attrition, at the time of its implementation and is certainly not a fan one year on, declaring that consumers are now actually in a worse position than they were previously.
Furthermore, Mr Lakey believes the true scale of the changes are being obfuscated due to the regulator’s use of a number for the advice market - the aforementioned 32,690 with an RDR statement of professional standing - that does not necessarily relate to the amount of advice being conducted.
“We are talking different things here: an adviser and someone authorised by the FCA is not the same thing. My understanding is there are 21,800 actual advisers. The definition of an adviser is someone who talks to the public, not something who is authorised and sits on his bum doing whatever else he does, so figures can lie can’t they?”
He added that another reason why it’s worse for consumers as previously they could see an adviser at the bank, which he says was better than nothing.
“I Imagine that you went to a lender and you took out a mortgage and they recommended a protection plan from a certain provider, I assure you that I could beat that, I could make it cheaper and more comprehensive, but if this person didn’t come see me it’s better for them to have that mediocre plan than none. Now they will have none.”
Mr Lakey firmly believes that the loss of banks will also have pernicious longer-term consequences, echoing other commentators that there is now “no mechanism” for new advisers to enter the market as banks were the “adviser kindergarten”.
“Take Peter Chadborn [director and adviser at Plan Money]. Everyone accepts he is a top adviser who has got great skills and knows what his clients want, looks after his client etc. Peter started off at Barclays bank – he was there for years – so the point is that the banks acted as a kindergarten for financial advisers so as there is no kindergarten how will it work now?”
Mr Lakey, who is a sole trader, added that it would cost time and money if he wanted to take on a new employee and it may not be worth his time to train someone up.
“He won’t be productive to start with so for the first year or two he is costing me money and time and effort and when he’s trained up to a certain level, he might bugger off and go somewhere else or he might even steal some of my clients away, so I am not going to take a chance on that and many other people won’t either.”
Why am I restricted?
Much of Mr Lakey’s work falls in the protection and mortgages arenas, both of which do not fall under the RDR, but he also advises on investment and retirement products, which does fall under the RDR’s remit.
As a consequence of the RDR for his own firm, Mr Lakey now no longer offers independent advice and offers a restricted proposition, although he says that the only thing that has changed since the pre-RDR world is “the sign above the door” and that it has not affected his business or his clients.
He emphasises that his clients do not need venture capital trusts or enterprise investment schemes or other esoteric investments, but that if he was independent under the new rules he would have to look at those areas for his clients.
“It would be stupid for me to jump through the 115 hoops. I look at all the products that are suitable for my clients. I said this to the FCA the other day and I am now restricted: I used to be an IFA, but my business model is exactly the same.
“Restricted is a very bad word - it almost sounds like I have suffered some kind of regulatory enforcement as they have restricted me from doing things for you.”
Mr Lakey added that in his view, he is still independent.
“When people say ‘are you independent’, I say ‘I’m not owned by any company and I can deal with any company is that what you mean’? They say ‘yes’, so I say ‘according to your definition I’m independent but according to the FCA I’m restricted’.
Restricted is a very bad word - it almost sounds like I have suffered some kind of regulatory enforcement as they have restricted me from doing things for you“It’s easier to say I’m restricted. Do my clients care? No they don’t. Do they understand? No they don’t. Has it affected my business? No, it hasn’t.”
Because of the high independent bar, Mr Lakey predicts that in three years time, “80 per cent of advisers will be restricted”.
“There will be some people who will keep independence. The firms that can call themselves independent without any grief will be those that already work in esoteric areas.”
At a recent FCA roundtable, the regulator admitted the new ‘independent’ and ‘restricted’ advice propositions “are not completely working” and the FCA would be “redoubling our efforts” in the coming year.
“If the FCA say to me, has the name changing been a success, I would say ‘no it hasn’t, you are idiots because you’ve got rid of polarisaion which was the clear distinction between someone who worked as an agent of the client or an agent of an insurance company or some other body’.
“Now they’ve muddied the waters even further. That’s not been a success but it won’t inhibit advisers’ businesses as ultimately clients don’t care.”
