Chris Hannant: The gap between RDR winners and losers

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Apfa has been collecting data on the impact of the RDR and the picture of how the advice market is developing is becoming a little clearer.

We will shortly publish the full revision to our report, The Adviser Market: In Numbers, but this is how I see the sector shaping up. First, it is well documented that adviser numbers fell in the run-up to the RDR as those who chose not to take the new qualification left the market. 

There has been a smaller recovery since (as the FCA is keen to emphasise) because some passed their final exam a bit late or staff from the banks joined advice firms.

It seems that those who stayed in the market have done well. Turnover in financial advice firms in 2013 was up by 1 per cent from 2012 and profits rose by 14 per cent. 

I believe this was driven by a combination of factors. 

The costs of preparing for RDR have gone and advisers have looked more closely at the costs of serving their clients and focused resources on more profitable activities.

A regular conversation I have had with advisers is that over the past couple of years they have overhauled their business and what they do. This has left many of them in a much better shape to deliver a good service to their clients.

However, the profit figure for 2013 needs to be treated with caution. It does not include the salaries of those adviser/owners who take their pay as dividends and, as such, does not reflect the full costs of the industry. 

We are doing further work to try to understand this aspect better in time for when we release our updated figures.

Despite this, it is important to remember that aggregate figures conceal as much as they reveal.

It is my sense that there is a polarisation between those doing well and those who are struggling. 

The level of merger and acquisition activity suggests many are still looking to exit. The impact on the businesses of those who have not got their model right will become more apparent over the next year or so.

Finally, there is the question of access to advice, or “the advice gap”.

Now, it is not the case that prior to the RDR the whole population had a financial adviser. 

But with fewer advisers now, the potential supply of advice is smaller than it was.

I think the bigger impact comes from the increased focus of advisers on the type of clients who are of interest to them. This means that some will be unprofitable or that advisers will feel they cannot justify
a fee that covers their costs in respect of the service sought. 

This is highlighted by the 60,000 clients we estimate were turned away by financial advisers in 2013.

There is a challenge for the sector to develop new ways of delivering advice at a lower cost. But it also shows the need for the regulator to look at the cost of regulation and reduce it. 

I welcome the proposal to streamline reporting requirements but the FCA could go further. Apfa will continue to press it to do so.

Chris Hannant is director general at the Association of Professional Financial Advisers 

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