Advice firms with orphaned clients are likely to be in the sights of the lawyers who have been processing numerous payment protection insurance (PPI) claims, according to Michael Basi, chief executive of Onvestor.
Mr Basi, who is a qualified financial adviser and also runs advice firm Basi & Basi, said when the deadline for making PPI claims expires he expects lawyers to start looking for the clients of advice firms who don't receive ongoing advice but whose adviser still receives commission.
The Financial Conduct Authority (FCA) has previously expressed concern about the fees charged to 'orphaned' clients, most recently in relation to its work on fund platforms.
Last year it briefly considered whether to introduce a sunset clause on trail commission, payments advisers continue to receive from past business, but it is understood this work has been shelved.
A sunset clause for on-platform trail commission came into force in 2016, but a significant volume of off-platform investment business continues to be bound by similar arrangements. In such cases, investors remain in pre-RDR share classes paying commission to advisers, either because they no longer receive ongoing advice or because those legacy investments are still considered to be suitable.
Mr Basi said: "Lawyers may look at advice firms who receive trail income, and may look at it as advisers receiving money for advice they are not actually providing, and when PPI claims work stops, they may look to advisers."
Meanwhile last month, the regulator said usage of CMCs for bringing PPI claims has gone down since setting a deadline for bringing such complaints for August 2020.
About 7 million complaints have been made about the mis-selling of PPI to date, with more than £30bn in redress being paid back to consumers since 2011.
Many of those complaints were brought with the help of a third party, although the share of direct complaints has risen from 45 per cent to 55 per cent since the launch of the campaign.
Onvestor partners with advice firms and manages the smaller net worth clients on their behalf to ensure they still receive advice while the adviser can focus on the clients that are more profitable. This prevents clients from becoming orphaned.
He said: "My dad is a financial adviser, and I remember being in the office with him and a guy came in and had a remortgage job to be done. Dad spent most of the day on it.
"I remember thinking it couldn't possibly be profitable but Dad felt he had a moral obligation to help the person. I thought there must be a better way."
Mr Basi's model is to approach the clients advice firms give him and sign them up to his service.
He said he guarantees the advice firm the same level of income for the first year that they would have received from the client had they not involved Onvestor.
The client gets a first meeting with CR-30 qualified adviser and a paraplanner and Mr Basi said he increases the revenue to be gained from the client by helping with such tasks as sourcing insurance and utility prices.
Onvestor presently has 63 advice firms using his service, with the individual firms deciding at what level of wealth they consider a client to be unviable.
He expects growth to come from the advice gap, as identified by the FCA in the long term, and from advisers wishing to avoid legal action in the short term.
Mr Bari said: "The number of people caught in the advice gap varies depending on which estimate you use, but, I think a number around six million is right, and there are about 25,000 advisers. The maths of that says Onvestor can grow."
Paul Gibson, an adviser at Granite Financial Planning in Aberdeen, said clients with small amounts of savings or investable assets are typically not suitable for many traditional advice firms and may be better placed with robo-advisers.
He said: "As a relatively new firm we have no orphaned clients as we only take on new clients where the fee level provides value for both parties.
" We can't deal with small pots commercially at present and this is where robo-advice and direct to consumer platforms may help."
david.thorpe@ft.com
