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Carl Lamb: Putting a stop to advice firm closures


A prospective client had a sad tale to tell: she had just received a letter from her IFA firm to say it was closing its doors. It has become one of a growing number of firms finding the industry just too challenging. The message on its website simply states the business has become unviable as a result of regulatory changes.

Principals of many IFA firms throughout the UK will be nodding their heads in agreement. It has become a real struggle to keep margins at a commercially viable level. The options are either to raise fee levels or close.

The problem is not just about everyday battles such as the replacement of commissions with fees, the sunset clause and a growing administrative burden. It is also about fears for the future brought on by a double edged Sword of Damocles cutting one way with potential liability worries over pension flexibility and the other with an increasing cost of regulation, including the capital adequacy requirements due to hit us later this year. There comes a point where some firms will inevitably decide the battle cannot be won.

Part of the problem is that we have turned financial advice into an “all or nothing” proposition. To minimise the risk to the firm we must go through a fully advised process to prove our recommendation is in the client’s best interest. However, there may be room for an alternative route for those who cannot pay the fee necessary for this approach: some form of simplified advice. The issue for us as advisers is that we cannot deliver this if there is any danger client decisions made via a simplified route may come back and bite us later on.

The way I see it, the industry is like a three-legged stool: there is the FCA, the Government and the advice community with a leg each. The regulator wants us to tighten our processes to protect the client through an ever more complex regulatory framework; the Government wants the individual to have greater choice and flexibility to do what they want with their investments; and adviser firms want to deliver a strategy both cost-effective for them and in the client’s best interests, while ensuring they keep their professional indemnity insurers happy. Each has its strength but the big challenge is keeping all three legs of our stool on the ground at the same time.

What every sector in the industry has to recognise is that if we do not balance our stool properly the whole thing will fail and clients will be left with no workable solutions. It needs some serious joined-up thinking to come up with a design acceptable to all three parties.

Yes, we need to protect clients from the dangers of bad advice and from making potentially misguided decisions. Yes, we need a regulator to police the industry and to provide recompense where things have gone wrong. Yes, we need to ensure advice firms are sound both professionally and commercially. However, if achieving those aims results in an affordable advice vacuum, then we have, as an industry, failed.

We are facing a situation where even the strongest advice firms are questioning their future profitability and assessing the risks of continuing. It is time the industry grasped the nettle and admitted the situation is getting out of hand.

Carl Lamb is managing director of Almary Green



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Some cynics would say that the FCA are meeting their secret agenda of killing off the IFA community, and as we are all getting older that is a natural process.

    What is left behind is a financial planning wasteland, only the wealthiest can survive and the rest of the population are fed to the wolves.The blame lies fairly and squarely with the policymakers and regulators, the industry does what it can within the restraints applied. It is time for open and honest dialogue with all parties, but given that two of the three legs of the stool are all about self interest, that is unlikely to happen.

  2. Julian Stevens 2nd June 2015 at 10:22 am

    The FCA has made vague noises about a simplified (and thus much less expensive) advice proposition but, when it gets to the line, it just CANNOT bring itself to accept any of the frameworks put forward. If advice could be based on, for example, just Proposition (without vast amounts of time consuming and thus costly comparative research), Costs, Risks & Tax, rounded off with a brief summary of suitability, my guess is that so many advisers would opt for such a framework that the advice landscape would be massively transformed almost overnight.

    Hugely successfully, HL has built its offering on what so many consumers actually want, namely low costs, minimal bureaucracy and the avoidance of hours and hours of face to face meetings. Were the FCA prepared to sanction it, a simplified advice framework could sit very close to such a model and would very probably allow us and our clients to escape from the endlessly thickening tangle of regulatory procedures in which advisers are currently mired.

  3. Timely article Carl !
    For the first time in 24 years I am seriously thinking of my future, and yes, just packing it all in. I know I am not alone, our situation now, is just crazy beyond belief, over regulation, regulation costs, PI costs, ad hoc levies, funding various different quangos (MAS Pension guidance etc etc etc ) burdensome reporting (RMAR), now we have new cap ad requirements that for me as a small Ltd company is just ridiculous.
    I spent a lot of money to ready myself and my company for RDR (like many other IFA’s) but since this all I have seen is a constant barrage of extra cost, and regulation, so there comes a time when you just have to stop being forced to hand over your time and money, I am in effect a financial slave. not knowing from one day to the next what I will have to fund or pay for or indeed what extra regulation I will have to abide by !

    Is it fair ? personally I don’t think fairness comes into it, but I do think it borders on abuse ! physical, mental and power !

  4. The problem isn’t a three legged stool. A three legged stool is actually quite stable. The problem is that at anytime and without warning or due justification the FOS can kick one, two or three legs from your stool.

    Lets face, no IFA jumps through the hoops they do to appease the FCA, they jump through the hoops they do to stop the FOS finding fault (whether is any or not). Simplified advice is simple, appeasing the FOS is a complete and utter lottery and they have no written rules or regulations to abide by – simples!

  5. John Stimpson 8th June 2015 at 9:56 am

    Great article. To further the metaphor, I think that at least one of the legs of that metaphorical stool are now so long, that the tipping point is about to be reached and the stool will fall over. Or may be this has already happened?! I closed my business earlier this year and I can’t tell you what a relief that has been… that is, until I think about the lifetime of ongoing liability….

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