The golden ratio
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After 20 years of regulation, the numbers are rather different. There are now only around 40,000 financial advisers left and the savings ratio is down to less than 3 per cent. There have been other contributory factors to this decline but, of the FSA's many failures, the fall in savings ratio is probably the biggest.
The RDR is set to introduce four key principles, not one of which will address this.
A return to polarisation - IFAs welcome this and even the legal profession now recognises life companies are not independent. But will the FSA act against tied advisers who hold themselves out as independent after 2012? It refused to act against "independent" mortgage advisers who were tied to life com- panies for life business.
Higher professional qualifications - this is essential. The LIA was telling SIB to do this 20 years ago.
Adviser-agreed remuneration will arrive. But the Government and the FSA cannot understand the purchase of financial products is driven by quality advice and rarely by cost - the failure of stakeholder is the most obvious example. If price were the only consideration, we would all be driving a Kia.
Doubling capital adequacy requirements - this one is not yet finalised and has to be resisted. What is the purpose of having £20,000 on deposit that cannot be touched unless you notify breach? If a bad firm gets into trouble, the directors extract all resources and put the company into liquidation. The company no longer exists and its liabilities fall on the FSCS. All this requirement achieves is to make smaller IFAs tie up another £10,000 they cannot use. This will cheer the banks, nationals and networks whose adviser numbers may well rise as a result.
But here's the thing. As a network member, our PI premium was over 7 per cent of turnover. When we went direct (three advisers), it went down immediately to less than 3 per cent, where it has stayed for the last four years. I queried this with my broker. The answer was small, director-owned IFA businesses are seen as less of a risk than big institutions because the business is the directors' livelihood so more care is taken and they have fewer complaints and fewer claims.
The FSA's response is to consider pricing smaller IFAs out of business. Given their track record, this is hardly surprising. But to borrow a quote from Ian Hislop, if this is logical, I'm a banana.
It is suggested another 5,000 to 10,000 advisers will leave the profession by 2012 - what hope for the savings ratio then?
Simon Webster is managing director of Facts & Figures Financial Planners
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Readers' comments (1)
Phil Castle | 22 Sep 2009 4:09 am
I agree BUT
. Everything Simon says above makes sense to me except a MANDATORY increase in qualifications.
The idea of a client wanting an adviser to have higher qualifications should be sold rather than forced through using compulsion. This will be the major reasion why adviser numbers fall, not anything else in RDR, commission going (on investment business) is not a probelm as most advisers adjusted their businesses when stakeholder came in and are still adjusting (we are). Capital adequacy from £10 to £20k minimum is not a major problem (our min for cap ad was/is £17k and not the basic 10k anyway) The change in what can be allowed as capital is a bit of a pain as more will have to be liquid assets (Cash) than before. Three years until 2012 might seem like a long time, but if an adviser has only got 10 years left in the business, spending 3 years doing exams when the average no of entrants passing for a diploma exam is less than 50% means that most papers will take Mr average two sittings to pass and four passes at diploma being needed means 8 exam sittings at 2 a year equals 4 years.
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