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 firstname.lastname@example.org