OpinionMay 22 2015

Regulators must read this... and act

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Regulators must read this... and act
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One of the stories published on FTAdviser this week should be put under the nose of every person of influence at the regulator. It should be required reading for senior figures in the Treasury and elsewhere across our newly elected government.

Three in 10 financial advisers could be set to leave the profession within five years, according to a recent study. Most of these, around a quarter in total, say they will leave within two years.

At a time when the industry - and, frankly, society - is getting to grips with unprecedented new freedoms in pension access that have the potential to leave retirees destitute (remember, those who take cash lose entitlement to state benefits), this should set alarm bells ringing.

I sat at a dinner last year listening to John Griffith-Jones, chairman of the Financial Conduct Authority, wax lyrical about the importance of professional advice in this brave new world.

Hell, the government and FCA have made it a requirement to seek advice to transfer final salary or other ‘safeguarded’ schemes to take advantage of the rules.

We have also seen ‘project innovate’ and other work designed to help close the perceived ‘advice gap’ - another phrase often used by politicians and regulators promising action to ensure ordinary people have access to expert support.

The simple truth is that good intentions and supportive tinkering are not enough to stem the tide of an ageing profession facing ever greater burdens and in which morale, at least judging by a highly vocal minority, is at rock bottom.

Indeed, while the article referred to looming and long-signalled changes affecting legacy commissions, the comments underneath tell their own story about the real concerns we hear from adviser contacts day in and day out.

One said of their 18-year old, straight-As daughter’s intimations that she would like to join the family business: “I would be failing her as a parent to pass on this most putrid of poisoned chalices in this regulatory environment that only penalises the good people... I could not look her in the eye if I had lumbered her with the sorts of regulatory fees I have stumped up in the last few weeks.”

Another of the younger advisers (age 36) wrote simply: “Maybe the older ones need to think before they speak, as I’ve found it’s not the most accommodating industry to new blood. In fact I’d suggest anyone with any option for something else did something else. I’m stuck now.”

The fees issue is shameful. FSCS levies, paid for in the main by good, honest firms to cover losses from failures related to dodgy unregulated investments they would never touch, have soared to a combined £216m this year.

FSCS levies are paid for in the main by good, honest firms to cover losses from failures on dodgy investments they would never touch

Pensions advisers in particular were hit with a £100m maximum levy for the coming year, three times more than they were billed last year and coming on top of an interim bill for £20m in March.

Then there are the FCA fees. After years of steady increases, advisers got a reprieve last year as the regulator corrected an ‘anomaly’ that ripped off the least risky firms which do not hold client money. This year the sector was hit with the largest fee increase of 10 per cent, to £75m.

It is crude maths, but I make that a total bill of £311m that has been confirmed in the past three months alone.

That is £28,272 for each of the 11,000 financial advice firms the FCA lists in its life and pensions and investments categories.

On top of all of this is the concern over insistent clients or claims of one sort or another. Recent Fos data suggests concerns over retrospective claims might be overblown, but advisers tell me that this is not what they have seen in practice.

They also express vitriol at the overbearing regulation that permeate their daily lives; the compliance burden which takes up valuable man hours and thus increases their cost of doing business. Again the regulator refutes most of the claims, but that is how advisers feel.

The truth is the sector feels like it is unduly burdened, particularly with fees, but also general regulation.

Representing a small amount of complaints each year, advisers feel they do not get deserved recognition for the valued service provided and are generally regarded with haughty disdain.

I have said before that the sector is overly negative - and undoubtedly that is true. Another story this morning points to increasing business levels and referrals and emphasises claims of a bright future in terms of demand.

But it is the supply side that concerns me. We already arguably have too few advisers to meet the demand coming down the line, so losing more - or even simply failing to encourage new blood to replace those retiring in a sector with an average age of 58 - cannot be allowed.

Policymakers that apparently believe as we do in the importance of advice, must show they are taking steps to address advisers’ very real concerns.

A moratorium on fees increases, a proper consultative review of FSCS levies, a stepping up of efforts to simplify compliance documentation, would all be a very positive start.

ashley.wassall@ft.com