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Advisers see bad reputation as bigger threat than PI

Advisers see bad reputation as bigger threat than PI

Advisers are more concerned about the poor behaviour of some of their peers than about the rising levy and insurance costs, research has shown.

The Lang Cat’s State of the Adviser Nation report showed 80 per cent of advisers thought being “tarred with the same brush” as bad advice firms was a threat to the advice profession.

Some 30 per cent of the 404 advisers polled in late 2019 thought this issue was the biggest single threat to advisers, while a further 50 per cent marked concerns over reputation as at least somewhat a threat to the industry.

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This was more than the 75 per cent of advisers who marked dwindling immediate profitability — from an increasing Financial Services Compensation Scheme hike and rising professional indemnity insurance costs — as a threat to the industry.

About 20 per cent of advisers thought this was the biggest single threat and a further 55 per cent were somewhat worried.

The Lang Cat stated: “The past 12 months has seen the usual raft of failing investments, but too often advisers pay the price, through higher PI cover or a battered reputation, for problems out of their control.

“There is little discrimination between firms that tread a mainstream path and the risky behaviour of some which influences the whole sector. This is unjust and the advice community feels the unfairness keenly.”

The biggest threat seen by advisers, according to the research, was the regulator’s drive for value for money. This was cited as one of the top two threats by 60 per cent of respondents — far more than any competitor or market threats.

As a result, the vast majority of advisers have reduced the total cost of investing for clients in recent years as the price war continues to put pressure on fees and the regulator’s beady eye curbs any increased charges.

Lack of trust in financial services driving people away from advice was also found to be a threat to advisers, with 70 per cent of those polled marking this as a threat.

But advisers were less concerned about the advice gap, the “talent pool” drying up and the potential disruption from robo-advisers.

Just 40 per cent of advisers marked the advice gap — affecting consumers who would benefit from financial advice but who are unable to pay for it — or a difficulty attracting high quality staff into the sector as a top three threat.

Advisers thought robo-advice was the smallest threat of those listed in the Lang Cat’s research.

Nearly half (49 per cent) of participants placed potential disruption from robo-advisers or other new wave technology in the bottom three issues that posed a threat, with less than 30 per cent marking it as a top three threat.

The Lang Cat stated: “With the financial planning process increasingly holistic and person-centred, as opposed to product- or investment-led, the service provided by advice professionals is moving farther away from anything that can be replicated or challenged by an algorithm.”