Three years ago, I published the Heath Report Two which looked at the availability of financial advice.
It identified that, thanks to the Retail Distribution Review, consumers had suffered the double whammy of a 4,000 drop in adviser numbers and the surviving advisers halving the number of clients they each service from 405 to 194.
As a result, the number of consumers the profession was servicing had dropped from 16m to 6m.
This week (January 15), Libertatem has published its third report. The Heath Report Three monitors the changes since the last report and opens up a new area of research - namely the retirement plans of advisers.
The Heath Report Three had twice the number of survey respondents answering three times the number of questions. The detail is jaw dropping.
The new Heath Report has identified that advisers are still dropping clients and that forthcoming retirements will treble exiting advisers.The good news is in the past two years the number of advisers has increased 1 per cent, or by 300. The bad news is that the adviser/client number has dropped again from 194 to 160 and, as a result, another one million consumers have lost access to advice.
The new Heath Report goes further than its predecessor. It not only identifies the issues, it comes up with some answers.
The new area of research was the retirement intentions of advisers. We discovered that 1,650 advisers are ready to retire now. We also discovered a similar number will retire every year for the next decade.
To put this in context, last year we lost 900 advisers. Some to retirement, some to other causes.
As higher levels of retirement take hold, we will have 1,650 retirees plus maybe another 500 of pre-retirement age.
Unless these advisers are replaced by new recruits, the number of consumers accessing advice could be under 1m in 10 years.
More importantly the cost of regulation will be split among a much smaller number of clients.
The current fixed cost of regulation is £72 per annum. Fancy explaining to your client that the cost is now £147? You will have to in five years. Or £329 in 2030.
We must start a major effort to recruit and retain advisers. We have called this project “Adviser Train” and it will train administrators, paraplanners and advisers.
If properly constructed, Adviser Train could access over £300m per annum to fund this effort from the government’s apprentice scheme.
I have had a number of meetings with professional bodies and they all have falling numbers, and they don’t have our regulation or its costs.
However, recruitment is not our only issue that needs to change if we are to avoid managing decline and start increasing advice.
Firstly, we need the Treasury and the regulators to get their acts together. The way RDR denied consumers access to advice was wholly predictable.
The Treasury Select Committee identified the issue and Hector Sants told them that “simplified advice” would come to the rescue. It never appeared.
Then we had FAMR and then robo-advice was the new fashion. That hasn’t replaced advice either.
What price guidance? Public policy should go back to encouraging advice.
Secondly, the regulator’s power is derived from three nebulous objectives in FSMA 2000. What it missed was an objective that forced the regulator "to encourage consumers to invest and protect themselves”.
The current objectives allow the regulator to load ever more duties and costs on the regulated without regard to how it affects the consumer - witness 16m to 5m in eight years.
We do not need to wait for a change in the Act; we just need the board of the FCA to make it one of their aims in their annual plan and then ensure it is delivered.
We need to address the barriers to entry. The way FOS operates is not only a judicial disgrace but is a major disincentive to investment in the advice sector.
It must return to common law principles otherwise advisers will not have PI insurance. How are we going to recruit new advisers if they know that after a career in the profession, a whim from FOS can take away their house?
The FCA needs to police the industry. There are a number of times the regulator has the information but fails to act quickly. A cynic might suggest that some scandals are allowed to fester until they become newsworthy.
Finally, we need to sort out capital adequacy. No other profession is judged by this measure. It restricts the development capital available and stops firms restructuring. It must go.
So, the new Heath Report has identified that advisers are still dropping clients and that forthcoming retirements will treble exiting advisers.
Alternatives to proper advice have failed and we need to revive its fortunes.
Recruit new advisers, remove the barriers to entry and make the regulator adopt a new objective - namely, "to encourage consumers to invest and protect themselves”.
Hard copies are available to non-members from thr3@libertatem.org.uk
Garry Heath is director general of Libertatem
