You could say 2012 has been a year of preparation. With a new regulatory set-up due to take over in April and the launch of the RDR on 1 January, most financial advisers businesses have changed dramatically over the last 12 months.
Many would agree the RDR has posed the biggest impact on advice businesses this year.
The RDR will require firms to explicitly disclose and separately charge clients for their services, offer distinct independent or restricted options and adhere to strict professional standards including a code of ethics.
Advisers also have to hold a QCF level 4 qualification by 31 December and must undertake at least 35 hours of continuous training each year.
Advisers are not shy in expressing their views on the flaws of the RDR, with some branding it a “complete waste of time” and a “shambles”.
Sentiment around the RDR was not helped by the Government’s last-minute announcement that it is considering capping or banning consultancy charging for auto-enrolment pension schemes, potentially forcing advisers to renegotiate terms with providers and clients.
A survey by Aviva in 2009 suggested 37 per cent of IFAs would leave the industry before the RDR came in to effect, however when the survey was carried out this year only 3 per cent said they would leave, suggesting many advisers have changed their minds.
Possibly the biggest concern about the profitability of advice going forward has been around adviser charging.
Many firms fear clients will not want to pay a fee for advice, or will not be able to afford it.
Firms say continuing to service lower end clients at a cost they can afford will not be profitable once commission is banned, which will created increase the advice gap.
Some advisers have voiced concerns that banks will hoover up the mass market clients that can no longer afford to see an IFA, and will offer poor advice and products that will not be in their best interests. Many advisers have claimed lobbying efforts have resulted in an easier ride for the banks, however this does not appear to be the case.
Santander recently suspended its investment advice service and pulled its 800 advisers off the road as they are not fully trained to meet RDR standards.
This comes after Lloyds Banking Group scrapped its investment advice service last month, offering services only to consumers with £100,000 through its private banking service. Other banks such as HSBC, Co-Op and Barclays have scrapped or cut back their advice arms, largely because of the RDR.
An ongoing concern for advisers this year has been the cost of regulation, which consulting firm Protiviti claimed will increase by as much as 20 per cent next year.
Financial Services Compensation Scheme levies have been steadily rising, with investment advisers already having paid £66m in levies this year.
The FSCS announced this month that it forecasts a further £25m interim levy on the investment intermediation class for 2012/13 as a result of claims relating to the collapse of Pritchard Stockbrokers and spreadbetting firm sWorldspread.
Evolve Financial Planning director Jason Witcombe says: “Every time we get our FSCS bill through it seems to have gone up a lot. It costs a huge amount of money to run an advice business.”
In addition to concerns about the RDR and increasing regulatory costs, worries spread through the industry in July when Honister Capital entered administration after it failed to secure professional indemnity insurance.
More than 900 advisers were forced out of work with immediate effect, unable to provide any authorised advice.
All trail and pipeline commission became the asset of the administrator, Grant Thornton, which sold it to IFA firm MacRobins. This fuelled anger among ex-Honister advisers, who were forced to pay up to 50 per cent of recurring annual commissions to move clients to another firm.
The collapse of Honister sparked questions around the benefits of networks, considering the costs involved and the potential for loss of earnings in the event of insolvency.
In August, Threesixty Services managing director Phil Young said: “Networks were set up as a way of pooling resources and sharing risk. But it only takes three or four advisers out of 100 that rack up a large number of complaints for the cost borne by the network to soar. That, in turn, has to be passed on to its advisers.”
So if this year has been particularly challenging, what is in store for 2013?
Some advisers feel the industry has already come through the storm.
The Finance Planning Group chief executive Terry McCutcheon says: “I think most of the changes we were waiting for have already been made.
“The wave has already come through and you have either been washed away or you are still standing.”
Some firms have decided to launch
execution-only propositions in the new year to either attract new clients to the business or to cater for those low-value clients they may otherwise have to turn away.
Plan Money has recently launched a non-advised proposition and Informed Choice has announced it is launching an execution-only investment platform in March next year.
Witcombe says this is a good way forward for firms. He says: “I think there is a place for it and it will be a crowded market. It is a decent way of retaining a relationship with people who do not meet the criteria for one-on-one services.”
There has been much debate as to how many advisers retain their independent status. FSA research this year showed only 12 per cent of IFAs plan to go restricted.
Towry recently announced it will offer a restricted advice service on all retail investment products, along with Close Brothers Asset Management and Openwork.
McCutcheon says: “Once the long-term implications of this are better understood a lot of people will probably shift to restricted.
The strictness of independence may catch some people out, or scare them of being caught out by the regulator on a technicality.”
Overall 2013 will be a year when advisers test new waters.
The FSA has promised to carry out a post-RDR implementation review to assess the outcome of its reforms, leading many advisers to conclude RDR mark II will not be too far away.