As it stands, advisers are unlikely to be seen as a profession

Recent research by the Financial Services Compensation Scheme sees trust in financial advisers at a pretty low point, and work that I have been doing for my upcoming PhD thesis indicates several reasons as to why that might be the case.

On the thesis, I am at submission stage, so it is 95 per cent done and I am reasonably comfortable sharing some snippets of my findings at this stage.

First, we know that clients with advisers are richer than those without, and from work by Olshansky and Ricanek as recently as 2020, we know that people with less money live shorter lives and a greater proportion in ill-health.

We, as a force in society, make people's lives longer and healthier – in theory. Getting this right is hugely important.

My paper features a survey of the public in which they were asked to what extent certain dimensions of professionalism had an impact on trustworthiness.

The demographics under the age of 45 seem to actively distrust large organisations

Those dimensions included concepts such as CPD, certification and qualification standards, but also more unusual dimensions such as the concept of corporatisation and whether large organisations dominating the space led to more public trust or not.

On the concept of large corporations, I have putatively found that older men do quite like a large brand in general, but almost every other demographic currently does not.

This is a short warning that the trust that is placed in these large entities may wane over time as wealth passes down the generations. The demographics under the age of 45 seem to actively distrust large organisations.

My work has allowed me to distil down into what I call professionalisation vectors (PV). These are four groups of concepts that when all acting together build trust in a profession in a much more powerful way than if they were acting sporadically, or even against each other.

These concepts are integrity and honesty, confidentiality and transparency, consistency, and serving the public. 

The PV most of interest to advisers is the "individual PV", which functions as a code of ethics for any profession. Once you have worked through it, you'll understand what it is all about as there are shades of these concepts in every trusted profession in the country.

Integrity and honesty

Integrity and honesty are, in fact, very different.

Integrity by definition normally includes possessing moral virtues such as honesty, however it is possible for people to appear to be virtuous when being not so.

When considering how honest we've been with clients it is important to consider the problem of lies by omission, which is not telling clients certain facts that are important to their decision making process.

This is a difficult concept to master as it is very easy to mislead by accident, by forgetting to tell a client an important fact.

That said, this is exactly why we have an army of fresh eyes examining our every move to ensure that this type of inadvertently misleading conduct does not occur. However, I would just question if firms are really reviewing file notes with the scrutiny they review suitability reports.

Ensuring verbal disclosure of important material facts is arguably more important than writing these facts down in a huge suitability report.

Confidentiality and transparency

Confidentiality and transparency are relatively simple concepts.

Do not show off down the pub about how rich or well connected your clients are, and tell clients everything.

I am disappointed by how few advisers publish their fees on their website and have long argued that the FCA should standardise a rate card that advisers should publish in the same manner that applies to certain legal services.

With the alphabet soup of legislation over the past 10 years it is not surprising that how we provide advice has changed on a near-annual basis, meaning the service (while hopefully improving) certainly has not been consistent

Consistency

Consistency is almost impossible to ascertain, but luckily this is not really the fault of the adviser.

There was Mifid in 2007, RDR in 2013, GDPR in 2016, Mifid II, IDD, and the SM&CR in 2018, CD now in 2023.

With the alphabet soup of legislation over the past 10 years it is not surprising that how we provide advice has changed on a near-annual basis, meaning the service (while hopefully improving) certainly has not been consistent.

This poses a risk to the public trust and the constant changes from the regulator have potentially damaged this trust.

Serving the public

Finally, serving the public is a difficult thing for advisers to do.

We are businesses and must make profit else we go out of business, which serves nobody. However, we must also engage with the public and "give something back".

I volunteer for charities and community organisations, but understand that not everyone has the time and patience to do so.

I have every sympathy with the FCA in its plight to regulate our industry. It is there to regulate insurance companies, investment companies and then a small group of financial advisers.

But the top-down strategic regulation that is entirely necessary for the insurance and investment industries is a technically complex fit for advisers that require a bottom-up approach.

To conclude, advisers are unlikely to be seen as a profession due to the lack of trust there appears to be. The real question is whether we are heading in the right direction.

My opinion is that advisers are, in general, trying to work in the right direction. The issue is that, sadly, the directionality of the regulator is not helping as it seems to seek to industrialise the regulation of financial advice.

Daniel Elkington is a chartered financial planner and a PhD candidate in his final year