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Heath claims clients for advice will plunge from 10 million to 2 million

The RDR will cause the IFA sector to lose over 75 per cent of its current client bank, according to former IFA Association director-general Garry Heath.

Speaking at a PanaceaIFA event at M&G Investments in London this week, Life Change chief executive Heath said the retail distribution review will cut the number of people receiving advice from 10 million to two million.

Heath said the estimate that 25 per cent of advisers will leave the industry as a result of the RDR will reduce clients from 10 million to 7.5 million.

He said that number will drop to two million as a result of advisers moving to a new approach where the focus will be on high-net-worth clients.

Heath said: “The RDR will disenfranchise 75 per cent of the current clients held by the IFA sector. The number of people with the capacity to have an adviser will drop from 10 million to two million.”

Heath added that this reduction will damage the advice sector’s ability to use its dist- ribution clout to force down prices. He said: “When you suddenly become an ascentric minority, you do not have that power any more.”

Derbyshire Booth Financial Management managing director Greg Heath says: “Advice will move up market, there will be less choice for consumers and banks and insurance companies will be the big winners.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. What rubbish. Figures out of nowhere. Our firm’s loss is negligible and we have more work than we can handle! We are not moving into HNW clients. However I would agree that over the very long term there will be a drift to HNW clients not because of the RDR but over regulstion, ambulance chasers and the cost of employing people.

  2. Sam, spot on. We are seeing exactly the same results. If you have a proposition that clients understand, does not rip them off, then you will find the future is extremely rosy.

  3. @ Sam Caunt.

    Actually, Sam, Garry’s figures may understate the situation.

    Anyone who tuned in to the woeful responses of the FSA at Wednesdays TSC hearing will know that they are totally lost when it comes to figures, costs and benefits.

    Something that few have factored in to this decimation is the total loss of jobs.

    Maybe 5,000-10,000 advisers will go.

    Maybe 5,000 support staff will be dismissed.

    Maybe 10,000 upwards insurance company and investment house staff will be forced out.

    Add that misery to the millions of orphaned clients who will suffer at the hands of the banks, the ‘simplified advisors’ and their own apathy and you have the deimation in place.

    Wanton destruction designed to fit somebodys dodgy theory!

  4. wanton destruction coupled with reckless stupidity Alan.
    The rdr should be renamed the reckless destruction review.
    All from a regulator who will remain unaccountable when it all proves to have been a disaster, brought about on the whim of a mad dictator.
    You could not make it up.

  5. Given all the criticism that’s been levelled at the FSA’s assumptions as to the effect of the RDR on the merketplace, Mr Heath’s leap of faith from 7.5m customers to 2m seems remarkably non-rigorous but (unsurprisingly) unchallenged by the MM readership.

    And I’m not hugely convinced by the use of the word “ascentric” either – probably that’s supposed to read “acentric” but I think “eccentric” (as in orbit rather than as in odd) is closer to the meaning we’re seekingGiven all the criticism that’s been levelled at the FSA’s assumptions as to the effect of the RDR on the merketplace, Mr Heath’s leap of faith from 7.5m customers to 2m seems remarkably non-rigorous but (unsurprisingly) unchallenged by the MM readership.

    And I’m not hugely convinced by the use of the word “ascentric” either – probably that’s supposed to read “acentric” but I think “eccentric” (as in orbit rather than as in odd) is closer to the meaning we’re seeking.

  6. Incompetent Regulators Awards Team 11th March 2011 at 11:28 am

    gary is spot on. People and in particular will be disenfranchised having to pay fees rather than advisers being paid commissions.

    Question for the FSA. How come RDR wants to abolish incentives such as commissions and yet the FSA staff have been rewareded bonuses for years? Are they not incentives? For failures I might add!!!!!

  7. Fantasic claims dot com.

    If you don’t have hard evidence you hazard a guess. Sums up UK financial services and its ‘urban myths’.

    My clients are orphans, some of them have been ripped off by the sharks who are circling them after my ship hit the regulatory reef.

    What makes it worse is that I feel guilty for not charging enough to pay the bills. Too soft like so many others, not selfish enough like those who look forwared to having another 2.5 million clients, if Garry’s figures are even remotely accurate.

    Alan Lakey, I hate the use of the word ‘maybe’, try the FSA tactics of ‘we know’, ‘evidence suggests’ or whatever else the regulators come up with when asked to defend the indefensible.

    BTW, did you see Sants and whatshername before the TSC this week? What a complete and utter shambles….

  8. Perhaps I’ve missed it, but one thing I haven’t seen in these articles is what will happen if there is a 20% fallout of advisors.

    The rest of us will have to pick up the tab for the FSA and FSCS – i.e. a 25% hike in payments for both. That could easily put more firms out of business.

    If it puts a further 5% out, then the hike will be 33 1/3% for the rest and so on.

    2 of the possibilities from this is that either:
    1 Sant’s et al know this will happen and are content with it
    2 they haven’t fully realised it yet.

    The inference from either of these is that the FSA is content to help the “too big to fail, too big to regulate properly” banks.

  9. Methodology: IFAA in 1998 was asked by the EU to estimate the number of clients satisfied by the IFA Sector in the UK. After consulting with the ABI and AITC etc. We came up with 9m clients

    Since 1998 the IFA sector has enjoyed on average 10% more market share. As an underpinning factor the ABI tells me that there are 20m pension contracts sold by IFAs. My 10m clients mean they have 2 each!

    On the basis you accept 10m is a reasonable figure: there are various estimates of how many advisers will be hanging up their boots post RDR.

    FSA claim 10% but that includes all forms of adviser, Mortgage etc. They also gave the figure of 6100 at the TSC. or 33% of the advisers effected.

    That matches Ernst and Young’s estimate;Deustch Bank makes it 50%

    Take 10m and remove 33% of the advisers and you get to 6.6m

    However we now need to assess how many of the existing 6.6.m clients will be able to get paid for advice and be willing to pay for it.

    Looking at back issues of NMA; where a traditional IFA moves to the NMA model they drop their active clients by 75% as they need to concentrate on giving a more in depth service to their “Gold” clients.

    Remove 75% of 6.6m and you disenfranchise 5m more clients leaving 1.6m Gold clients QED

    As Sam Caunt’s post shows us advisers are very busy and will not pick up any meaningful slack

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