Advisers will need to demonstrate their value for money in 2016, as it gears up to be a year full of regulatory complexity and significant change in the world of pension advice.
According to independent consultancy Clapton Consultants, which was set up in October by Eric Clapton, the former chief executive of Wellian Investment Solutions, there are five core challenges that advisers will have to overcome, not least the auto-enrolment of micro firms and the outcome of the Financial Advice Market Review.
Mr Clapton, who is also chairman of London-based Greenstone Financial Planning, pointed to market volatility, a lack of joined-up collaboration between advisers, accountants and legal professionals and a possible exodus from buy-to-let following the chancellor’s tax changes in the Autumn Statement, as three challenges facing advisers in 2016.
However, two other issues might cause even greater headaches for IFAs. Mr Clapton warned the involvement of so-called ‘micro firms’ in the auto-enrolment initiative next year will “present a significant challenge for advisers”.
Although small firms are easier to auto-enrol than their larger equivalents, Mr Clapton claimed that the “sheer number will test capacity in a low margin sector while employers and staff will be less than willing to pay for ongoing advice”.
He said one way for advisers to be involved profitably in this sector would be to collaborate with accountancy firms in this area. “This would spread the burden and reduce costs, but many firms are still unsure of the best way to do this.”
Mr Clapton also said the outcome of the FCA and HM Treasury’s FAMR could uncover a host of complications; should the FAMR indeed discover that there is an advice gap for those who “feel they cannot access financial advice or do not value it”, there may need to be alternatives offered, while firms will have to prove their worth.
“Alternatives such as guidance, robo-advice and D2C solutions will present significant competitive challenges particularly when targeting younger clients, while continuing regulatory complexity adds to business costs,” he stated.
|Auto-enrolment of small firms|
|Lack of professional partnerships|
|Possible buy-to-let exodus|
His comments echoed submissions to the FAMR consultation, which closed yesterday morning (22 December), made by both the Association of British Insurers and Newcastle-based True Potential.
According to the ABI, advice should be made easier to access, perhaps by using the FCA’s project innovate programme to “support and ensure consistent standards of development for ‘robo-advice’ solutions, which some providers have already launched”.
David Harrison, managing partner of True Potential, said slashing the cost of providing financial advice should be a top priority and added that his firm’s analysis showed a “dramatic reduction in the number of advisers” due to the regulatory burden.
True Potential’s data also showed that the number of advisers has plummeted, from approximately 200,000 sales advisers in 1990 to fewer than 23,000 financial advisers at the end of 2015.