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FSA says that advisers are locked in spiral of decline

The FSA says advisers could be caught in a “spiral of decline” because of falling revenues and increasing oper- ating costs.

In a paper charting the risks posed to the financial serv- ices sector, the FSA admits that the burden of regulation it imposes, including depol- arisation changes and the treating customers fairly initiative, is partly responsible for the problems being faced by advisers.

It says that some advisers and asset managers are struggling with growing operational costs, increased regulation and consumers’ lack of confidence in long-term saving products and the industry as a whole.

It adds many firms do not have the money or know- how to invest in technology to streamline their business and increase productivity.

The paper highlights the extra pressure that regulation such as depolarisation and treating customers fairly is placing on advisers to manage their legal and operational risks.

It says that firms need to ensure customers are aware of the implications of A-Day.

The FSA also says that firms, whether affected dir- ectly or indirectly, need to prepare for the EU’s markets in financial instruments dir- ective, which is set to come into force next year.

But the regulator says many advisers have been fairly res-ilient. Key trends have been market consolidation, with continued M&A activity, and the restructuring of networks for mortgage intermediaries.

The paper says: “There is a risk that the sector could get caught in a spiral of decline, with falling reven- ues, increasing costs of conducting business, increasing competition from banks and a lack of investment in low-growth firms, leading to significant structural change in the sector over the next three to five years.”

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