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Categories:Other,Regulation

The reality of why advisers are quitting

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For those, like myself, who scan constantly through a wide range of financial services publications and websites, one recurring theme is whether the RDR means consumers will be “denied access” to independent advice.

Barely a week goes by without another apocalyptic warning on the subject. Before starting to write this column, I spent a couple of hours searching through Google. Over the past two years, there have been hundreds of cautionary stories on this issue.

Just to give a brief flavour - in December last year, Sesame Bankhall Group executive chairman Ivan Martin wrote an open letter to the FSA: “The FSA’s own RDR cost-benefit analysis predicts industry costs will soar and we will lose 23 per cent of firms. Importantly, over one in 10 people (11 per cent) who currently have access to financial advice will lose out in the new RDR world.”

Sesame told MPs a month or so later the RDR is already having an impact. In its evidence to a Parliamentary select committee, the network said the overall number of adviser firms in Sesame’s network remained stable in 2010, taking into account joiners and leavers, but of the firms that did leave, 40 per cent said that it was a direct result of the RDR.

In February, the Association of Financial Mutuals - mostly consisting of friendly societies - told the same committee of MPs of its “concern that the FSA’s current approach to the RDR will reduce consumer access to advice and add unnecessary complexity.”

Only last week, it was the turn of SimplyBiz group, whose chairman Ken Davy claimed: “Between one million to three million clients will be deprived of access overnight to their independent, trusted advisers. This will lead to a worsening of the savings gap, the pension gap and the protection gap.”

Thankfully, our Ken is feeling in a heroic mode. At the same time as issuing his dire warning, he also announced SimplyBiz would be “putting a flag in the ground as the champion of independent advice”, by backing the cause for advisers who want to remain independent.

It would be easy to pick holes in some of the comments. For example, Sesame’s assertion that 40 per cent of its network leavers in 2010 and before were doing so because of the RDR.

Really? I would be more inclined to believe that many of those who conveniently blamed the RDR for their departure were doing so for entirely different reasons, such as not being able to hack their jobs.

More seriously, one of the striking aspects of the endless minatory comments about the “loss of IFA access” is they almost always refer to the FSA’s own research on the subject.

The assumption here is if the FSA says people may be denied access to IFA advice, that must be right - quite how people square such blind faith in the same regulator which they profess to disbelieve in all other matters is a moot point.

Regardless, the FSA’s “research” has become the lodestone every adviser uses if they need a handy reference as to how many IFAs will leave the sector. What does the research actually say?

It was published by the consultancy Oxera in March 2010 and the specific section people use in the context of IFAs leaving the industry is: “The actual overall impact on the capacity of the advice market of advisory firms leaving the market is relatively limited.

“If all the firms that indicated that they are (very or quite) likely to exit the market do so, this would result in a 11 per cent reduction in the number of advisers, a 9 per cent reduction in advisory firms’ revenues, and a 11 per cent reduction in terms of clients advised, assuming that this business is not picked up by other firms.”

In other words, the two scenarios Oxera is using to base its research on are first, that IFAs will follow through on their threat to leave the industry - which I don’t believe for a second - and second, that none of these clients will be picked up by other IFAs.

I can accept that many clients are likely to be dumped by IFAs in the next year or two but this is part of a cull that has been taking place for several years now, as IFAs move to get rid of clients whom they do not think make them any money.

As for those clients who are left, does anyone seriously believe an IFA leaving the industry would not be trying to sell any viable parts of their business on, including a healthy client bank?

My belief - backed, incidentally, by research privately carried out by financial providers - is that fewer IFAs than predicted will leave the industry. Among those who depart, their clients will not be dumped at the roadside, unless they are considered “unproductive”.

The harsh reality is if people leave the industry, they will do so because they cannot handle the new demands. No amount of brave, fluttering SimplyBiz flags will save them.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Readers' comments (42)

  • Whats going on today?

    All these pro RDR articles comming out on the same day, smells to me!

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  • Sadly your cynical attitude is sad and for many IFAs totally misguided.
    I have been an IFA for 34 years, I love my job, I care for my clients and was hoping to continue for many years to come.
    Sadly the examination side of the RDR which I totally agree with is so demanding, I am struggling with it and am now having to consider my options.
    So to label those who will leave as hacked off with the business, certainly in my case is misguided.

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  • If Nick only had to put with such abuse in his so called 'profession' as IFAs. In the end the public are not saving due to bad regulations and a bad regulator. We have the proof and history has shown this under the regime of the FSA.

    There are too many people in the beaurocratic side which includes reporters opinions telling advisers what they should do. IFAs have no voice and thanks to AIFA who misrepresented us for so many years with placed men. The word 'selling' being a ditry one nowadays, but it did work. Now we have advice!!!!! Sellings was a good thing. No I am not talking about bad selling, good selling is highly professional and better than advising.

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  • I was at a seminar yesterday re RDR where it was commented IFA's would not advise clients unless they earned at least £700. This was due to the costs of advice.

    I would suggest the segmentation of client banks that providers are saying we must do will mean many - in fact 80% of our clients (as we should only deal with top 20%) will not get advice from an IFA.

    Perhaps this is what the providers want as they will then try and deal with these clients direct.

    What do you reckon? I know we will still deal with the smaller clients as they are our bread and butter and have helped us to get where we are now.

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  • Nic, I admire you for pinning your colours to the mast on this subject but in the long run I am sure you will be dramatically wrong and this will affect your punditry rating quite a lot. Grassroots/grapevine says a different story, suggest you have a plan B for the future. McDonalds perhaps?

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  • "Really? I would be more inclined to believe that many of those who conveniently blamed the RDR for their departure were doing so for entirely different reasons, such as not being able to hack their jobs."

    This will be the legacy of RDR. Financial Advice is no longer pleasurable because the regulation is ever changing, complex and usually retrospective. With costs rising as everyone (FSA, FSCS, FOS, CII etc) leeches off advisers it often seems as though our businesses exist solely to pay everyone else.

    RDR is a symptom of over-regulation and whether or not you agree with its aims, I doubt anyone would agree with the way it has been implemented.

    Our business teeters on the brink of the next regulation. When you cannot plan or predict the next change, you cannot build a viable, well planned business and you certainly cannot invest in your business.

    Financial advice is no longer a good place to make a living and that is why many good and honest advisers are now quitting.

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  • The FSA reckons 25%. Deutsch Ban 50%, Ernst and Young 30%.

    Nick - whatever the numbers it is the number of abandoned clients that matter. There is no spare capacity so those currently attached to departing IFAs will lose their adviser unless they are collected by another adviser. This will only happen to the most wealthy.

    Worse is that fee based clients will expect more of their adviser's time - even if you are notionally attached to n adviser you will only get his time if you can afford to pay for it.

    If this happened in the NHS there would be rioting in the streets. You can only have a GP if you can pay for it - very progressive - not

    G

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  • Nic, you obviously have no idea what being an IFA in a rural environment entails. Not for us a large High Net Worth client bank, but lots of clients on low average incomes who do not wish or cannot afford to pay for advice. These will be the people who suffer under RDR. Furthermore at the age of 61 it is extremely difficult to start studying again to pass exams from which I will have 3 yrs benefit, the lack of a Grandfathering strategy was madness. Have a nice time in your protected journalistic world, but your 2 hours research is hardly a thorough investigation of what is happening in the real world

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  • But of course Nick you are the Witchfinder General when it comes to IFA’s. Over the years you have made a living out of portraying a negative image of financial advisers, in some cases deserved but in many others cases unfairly. As a journalist what I have always failed to understand is why you don’t challenge the State, the unaccountability of an FSA big brother that is unelected and unaccountable. At a time when many in this world are fighting anti democratic rule why is it that you don’t seem to give a flying fig for the abuse of power that might otherwise bite you on the nose?

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  • I realise I'm in the minority but I think anyone struggling with the qualifications and spending time with clients who do not make them any money simply isn't working efficiently. Under those terms, a good income and career progression is not really to be expected. Nic is entitled to be provocative. He writes 20% of the words and the readership provide the rest. Smart use of his time if you ask me! Stop seeing clients that make you no money and pick the books up.

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