I have just returned from some Easter skiing in Canada in something of a state of shock. There are financial advisers in North America who advertise regularly on national TV. Before you say: “So what?”, just think for a moment – Britain doesn't.
The fact that Canada has a considerable number of adviser firms advertising speaks volumes. It tells us that these firms can afford the TV time, even in this market downturn.
It tells us that their levels of remuneration will fund this intensity of marketing activity and that the Canadian investor can easily find financial advice (indeed, can hardly avoid it).
Most important, it tells us that there is another way to control our national industry without crushing it.
As depolarisation approaches, it is timely for our political masters to ponder one question – how many financial advisers does the country want? This is not a spurious or academic matter.
The savings gap is widening, a new generation is failing to prepare for retirement and individual borrowing is spiralling out of control. The financial services industry plays an essential part in encouraging private savings – but only if it is allowed to. According to the latest Mori survey, 25 million Britons over 16 know about low-cost stakeholder pensions but only one million say they are even likely to buy one.
According to Royal London, 44 per cent of Britons make no regular savings whatsoever. It would seem that, whether the Treasury likes it or not, one basic fact has not changed since 1986 and the first Financial Services Act – people need to be persuaded and encouraged to save.
In one of Isaac Asimov's robot story collections, a super-computer was developed to control the social and welfare amenities for the whole planet and given control of food production.
The computer ceased all food production. Why? It had deduced that the ideal size of the human population to cause the least social control problems was zero.
Britain's regulatory process is designed to eliminate all poor advice and protect the investor from losing money. The most efficient method of achieving this is to eliminate all financial advice. So what is the ideal number of advisers to minimise rule breaches? Why, zero, of course.
A poor joke? Well, compared with 1986, the number of insurance direct-sales advisers in Britain virtually is zero and the PII problem (made considerably worse by the regulator) is currently threatening to reduce the number of small IFAs to the same figure.
So, as we enter this new phase of compliance, it is an opportunity for the Government to decide – “do we have enough financial advisers?” The answer is probably just about yes at the moment. Are these advisers able to promote savings cost-effectively to all levels of the public? The answer is certainly no.
Financial advisory services are the essence of our industry and the recent downturns have proved this point again.
Where are the execution-only, mailing businesses today? They are in serious recession and might even disappear. Three years ago, distribution seminars predicted that mailers would take 20 per cent of the IFA market in five years. At the two summits I have attended this year, they did not even rate a mention. Everyone agrees that advisory firms are the future.
The problem is that reduced remuneration rates and increased compliance costs will only allow for the cost of advice for high-net-worth clients and it was frightening at the summits how many providers glibly assumed that IFAs will only advise this segment. First, there are not enough HNWs to go round and, second, not all IFAs are capable of operating HNW services.
The biggest question, though, is who will advise middle and lower-income segments? The answer should be tied agents and bancassurers but our intensive regulatory regime and low remuneration policies are making this service impossibly expensive.
There was an awful lot wrong with our industry in 1986 and many things have been put right but there is a real danger now that the medicine may be becoming worse than the disease.
The reason that the trip to Canada was so shocking is that it was a reminder to me that while we could have cost-effective financial advice for all, they apparently do. Britain is choosing to make financial advice an expensive luxury only available to the rich.
Philip Rose is managing director at Wentworth Rose