Independent financial advice made up the majority of the advice on offer in the sector in 2016, the FCA revealed today (30 June).
In a 48-page Financial Advice Market Review report, the regulator revealed 83 per cent of firms provided independent advice in 2016 versus only 15 per cent providing restricted advice.
However, while only 15 per cent of firms offer restricted advice it formed almost 40 per cent of adviser charge revenue in 2016.
According to the FCA this was due to some of the largest firms in the market offering restricted advice while many of the smaller firms offered independent advice.
The FCA’s statistics come more than four years after then regulator the Financial Services Authority redefined what it meant to be ‘independent’.
Under the Retail Distribution Review requirements, introduced at the end of 2012, the definition of ‘whole of market’ expanded and covered areas such as ETFs, private equity and other more esoteric asset classes.
An independent adviser must now demonstrate they have considered all of these products in the process of addressing a client’s financial requirements.
Under the new rules, if an adviser cannot meet the definition for independence, they are deemed to be ‘restricted’.
The regulator reported the advice sector consists of a high number of smaller sized firms – 87 per cent of firms have five or fewer advisers.
At the same time, only 1 per cent of firms have over 50 advisers but yet these larger firms employ around 50 per cent of the advisers in the industry.
Just last month the FCA stated restricted firms and network members are doing better at giving suitable advice and making clear how much they charge for their services.
Over the past year the regulator reviewed 1,142 individual pieces of advice given by 656 firms as part of its suitability review.
Overall it found firms are providing suitable advice but it found room for improvement in disclosure – particularly on charges.
But the results showed independent directly authorised firms are likely to do worse at both suitability and disclosure than restricted firms and network members.
As a result the FCA said these firms will be the focus of a communication programme it will be rolling out this year that will spell out what good and bad advice and disclosure processes look like.
The results found 97 per cent of restricted firms were providing suitable advice while 90.8 per cent of independent firms were doing so.
Many expect the number of firms offering restricted advice to increase in the years to come.
In March a study by CoreData Research surveying 612 advisers found nearly half of expect Mifid II to have a negative impact on the financial advice industry and the majority believe it will lead to an increase in restricted advice.