We all know where the shambles over the Financial Services Compensation Scheme levy is going to end up, but the Financial Conduct Authority either seems not to have realised, or just does not care.
So, let’s spell it out. If we continue down the path that we are heading then the financial advice market will be torn apart.
There will be no advice for those who need it the most
We will end up with the majority of the market resting in the hands of a few vertically integrated businesses who have the financial clout to be able to pay the combination of fees and professional indemnity cover needed to run a fully-operational advice business.
In short, there will be no competition. Smaller companies will go out of business or will refocus their activities on a handful of largely uncomplicated high-net-worth clients.
There will be no advice for those who need it the most: the middle income families who have started saving and want to get their retirements on the right track.
Financial advice will be for the few – even more than it is already today – not the many. It will be an activity for the elite.
How to levy fees and charges for financial advice has always been a complicated issue for the industry. The greatest mistake companies ever made was to fight calls to be open about trail commission and to have a proper conversation about the cost of advice.
It was a chance missed to show value.
Instead the industry likes to talk about client outcomes, without really ever being specific about what that means. The result is no one normal understands the advice model.
To win the argument on fees, the first thing advice companies would be wise to do is admit that some mistakes have been made.
For too long, some companies took business from unauthorised introducers without any due diligence.
Others allowed obviously risky investments to be dumped in self-invested personal pensions, thinking again that there would be no comeback.
Everyone in the industry knows the people behind the same schemes that crop up again and again, targeted at those with large pots of savings.
And too many looked on and said nothing when they could see what rogue advice businesses were doing.
Companies should also make it clear that they are not adverse to picking up some of the tab, but that they want fairness built in to the model.