Financial Conduct Authority  

IFA numbers fall for first time since RDR

IFA numbers fall for first time since RDR

Concerns over the state of the UK advice industry have resurfaced, with data showing 1,680 advice companies have de-authorised since 2015 and the number of IFAs falling last year for the first time since the Retail Distribution Review.

Freedom of information requests submitted by FTAdviser show that while the number of restricted advisers has risen – bringing the total numbers up – those specifically calling themselves ‘independent’ have declined.

At the same time, several hundred advice businesses continue to cancel authorisations every year.

In total, FTAdviser has discovered 1,681 advice companies have left the market and cancelled their authorisations with the regulator in the past five years, including 66 who left the market in the first two months of 2020 alone.

Commentators have suggested the figures indicate the growing pressures facing advice businesses. Paul Stocks, financial services director at Dobson & Hodge, said the burden of regulation and a hardening professional indemnity insurance market might prove too much for some companies.

Mr Stocks said: “Relatively recent regulation change has been quite significant, such as Mifid II and the Insurance Distribution Directive... the demands they place on smaller firms [may] have become too challenging.”

Until now the industry has bucked the gloomiest predictions made for it over the past five years. While de-authorisation rates have been driven by consolidation across the market, the overall number of advisers in the industry has remained stable.

However, the FOI requests show that restricted adviser growth rates have now leapt ahead of IFA figures for the first time. The trend is likely being accelerated by the merger and acquisition activity of large companies and consolidators, many of which operate restricted advice business models.

Simon Goldthorpe, joint executive chairman at Beaufort Group, said the number of companies leaving the market was consistent with what his company was witnessing in the consolidator space. He said this shift was being exacerbated by the contraction in the PII market.

“An increasing number of [directly authorised] firms are now looking for safe homes, either by way of a sale or joining a network.

Mr Goldthorpe added: “I don’t see any immediate pick-up in independent adviser numbers until the new wave of bancassurer models starts to throw off some more candidates who have completed the early stages of training and experience.”

UK advice company de-authorisations, 2015-2020

Year of cancellation

No. of companies cancelled

2015

338

2016

360

2017

293

2018

332

2019

292

2020

66

Total

1,681

Source: FCA/Financial Adviser FOI request

Expected effect of Covid-19

The loss of such companies this year immediately preceded what some in the advice industry have branded an “unprecedented” challenge in the form of the global Covid-19 pandemic.

Mr Stocks said: “While we are likely to see a slow down in consolidator acquisitions in the wake of the Covid-19 crisis, the PII market looks set to get even tougher, so it’s entirely possible we will see numbers of firms dwindle further.”

The advice industry has faced uncertainty and volatility as a result of the pandemic and its associated lockdown, with warning bells sounded over the future of some smaller businesses.