IFA numbers fall for first time since RDR

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

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.

A recent survey of 166 companies by adviser forum Panacea Adviser found the financial impact of the Covid-19 outbreak could irreparably damage 14 per cent of advice businesses unless they are able to secure additional funding.

The research found that while 45 per cent of advisory practices did not think they would have to furlough workers, 44 per cent said they would have to consider the option. Furthermore, 18 per cent of those surveyed had asked for government support.

As reported by FTAdviser, Derek Bradley, founder of Panacea Adviser, said: “While old-fashioned sole traders or traditional partnership-style firms can put their own personal wealth into the business, many others risk failing over the course of the year.”

The FOI requests also showed that the overall number of advice companies rose again last year, from 35,537 to 36,616. But this was driven by the number of companies classifying themselves as either restricted advisers or companies providing both restricted and independent advice.

The latter would likely include restricted companies that have acquired independents but have yet to fully integrate them into their business.

The number of advisers providing restricted advice alone rose by 5.4 per cent between 2018 and 2019, increasing from 11,098 to 11,699 over the period.

Source: FTAdviser/FOI. Notes: 'Both' = overall number of advisers at companies that provide both restricted and independent advice. Type of advice provided by each adviser at these businesses is unknown. FCA categorisation of restricted advice changed in 2017, when more companies opted not to disclose these details.

Switching regimes

The FOI requests also showed that, as of March 3, there were 9,095 CF30s on the Financial Services Register. This is the customer-dealing function that exists within the approved persons regime.

According to the Financial Conduct Authority, the customer-dealing function is undertaken by individuals who undertake the company’s regulated activities directly in relation to customers of the company. This includes, but is not limited to, the provision of advice.

In an FOI response, the FCA said: “We are presently in a transition period between APER and the Senior Managers and Certification Regime.

“This has led to a low number of CF30s as the APER regime only continues to apply to small subset firms which are not SMCR firms as per APER.

“Under SMCR, financial advisers will become certified and assessed persons.”

The Directory of Certified and Assessed Persons is expected to be published soon, which should provide more information.

rachel.mortimer@ft.com 

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