Advisers are calling on policymakers to do more to increase adviser numbers following the first meaningful rise since the RDR.
Last month the FCA announced the number of advisers at advice firms had increased by 5 per cent from 21,496 a year ago to 22,557.
Experts say while the figures are promising, further steps to encourage new advisers to enter the market are needed to meet consumer demand.
The Government and FCA are currently looking at how to widen access to advice through the Financial Advice Market Review.
Apfa director general Chris Hannant says: “If we are going to have advice that caters to the mass market, we need more bodies. Something will have to be done to look at where those people are coming from.
“We need to make investment in the sector more attractive, which means looking at things like the long-stop, liabilities and confidence in the Financial Ombudsman Service.”
Research by Apfa shows a 5 per cent increase in pre-tax profit for advice firms last year at £931m, up from £884m in 2013.
But Hannant says rising regulatory costs have prevented some firms from investing in new staff.
In March life and pension intermediaries were hit with a £20m interim Financial Services Compensation Scheme levy after a wave of Sipp misselling claims. And in April it was announced the 2015/16 annual levy for life and pensions advisers would be £100m, up from £24m the previous year.
Hannant says: “A number of advisers have told me unexpected FSCS bills have taken away money they were going to invest in new staff.”
The FAMR call for input, which closes on 22 December, seeks views on reducing advisers’ liabilities, promoting innovation and improving access to advice – for instance by encouraging workplace advice – to help close the advice gap.
But independent regulatory consultant Richard Hobbs says it is unlikely to have a significant impact on the number of advisers.
He says: “The thrust of the FAMR is not to get new blood into the industry, it is to encourage firms to develop online advice models.
“The rise in adviser numbers over the past year is likely to be a mirroring of the upturn in the economy. But the number of advisers giving face-to-face advice is limited by the business model of IFA firms – you have to have enough clients with sufficient wealth to invest and the FAMR cannot change that.”
Intrinsic chief executive Richard Freeman says it is the “challenging economics” of providing advice which limits growth.
He says: “The small increase in adviser numbers is pleasing but we need the support of regulators and policymakers to achieve meaningful growth.”
St James’s Place has an adviser academy which produced 47 graduates in 2014 and expects another 50 this year.
And in October Intrinsic announced plans to buy Sesame’s Financial Adviser School, which would have otherwise closed following Sesame’s dramatic restructure earlier this year.
But some argue the increase in adviser numbers is not all down to new advisers joining the sector.
Personal Finance Society chief executive Keith Richards says: “Growth over the past year can be attributed to a mix of new entrants, some paraplanners becoming CF30 authorised and a re-entry of some established advisers who remained partly qualified or were focused on other activities post-RDR.”
UBS Wealth Management executive director Graeme Price says more firms are encouraging paraplanners to become CF30 qualified to help them manage risk and scale their business according to demand.
He says: “An awful lot of the RDR is about implementation and execution, so if a paraplanner is CF30 qualified it allows them to do some of the client-facing advice work, particularly if the adviser prefers to focus on the client relationship and bigger picture.
“Some CF30s will also be non-advising staff, such as business development managers at investment management firms.”
Return of the banks?
The FCA figures also reveal the number of advisers at banks and building societies has increased over the past year, reversing a steep decline since the RDR.
There are currently 3,672 advisers at banks and building societies, up by 15 per cent from 3,182 last October.
The number of bank and building society advisers fell by 11 per cent last year, on top of a 23 per cent fall between July 2013 and January 2014.
In September Santander told The Telegraph it was looking at increasing its investment and pensions advice business, two and a half years after it took 800 advisers off the road for failing to meet RDR requirements. The bank was later fined £12.4m by the FCA for poor investment advice.
A spokeswoman for Santander says the bank has increased its number of investment advisers from 130 a year ago to 200.
Nationwide has 300 investment advisers and Lloyds Banking Group has 400. Both lenders say numbers have not increased in the past year.
EY senior adviser Malcolm Kerr says: “Most institutions are looking at how they can interact with the mass market and hoping the regulatory environment will become a little less onerous through the FAMR.”
Fairer Finance managing director James Daley says he is unconvinced banks have learned from past misselling scandals.
He says: “On the one hand not enough people are getting advice, but we shouldn’t forget that Santander was fined heavily just a few years ago.
“I have concerns about banks only selling their own products and not telling customers if they would be better off going elsewhere. Some of the building societies which are still offering investment advice are doing it through tied arrangements and I have considerable reservations about that.
“Banks also have a poor track record on recommending low margin products such as savings accounts where it is the right thing for the customer.”
However, Hannant says the industry should not be sceptical about banks’ return to advice.
He says: “Every additional adviser means more consumers are getting help. That benefits all advisers as it means taking advice becomes more of a social norm.”
Expert view: Mature adviser market cannot meet rising demand
From what we are seeing, growth over the past year can be attributed to a mix of new entrants, some paraplanners becoming CF30 authorised and a re-entry of some established advisers who remained partly qualified or were focused on other activities post-RDR.
More firms have started to recruit new advisers either through structured graduate, apprenticeship or paraplanner schemes, recognising the “mature” adviser market is pretty much exhausted for recruitment to meet increasing consumer demand.
Given that the majority of intermediated firms are small, repopulating the sector will be more challenging and slower than for large corporates.
Fortunately the Government is now taking a greater interest in the sector following the introduction of pension freedoms and the evident need and value of advice.
Increasing access to advice is clearly back on the agenda and, whilst technology has a key role to play, more support to assist the growth and retention of the sector is vital if the Government is to achieve its objective of shifting responsibility from state to individual.
The FAMR is the first major opportunity for over two decades aimed at addressing the advice gap and needs to introduce reforms to assist growth of the sector to meet consumer needs. The public interest issues are apparent and for the FAMR to do nothing would now seem untenable.
Whilst some will be concerned about the banks re-entering the advice arena, it is time to move on and become a more united profession based on the core objectives of the advice review.
The advice sector has emerged as a profession and this is a second chance for the whole retail financial services sector to regain the confidence and trust of the public – but we need more advisers to do that.
Keith Richards is chief executive of the Personal Finance Society
Chartered financial planner, Aspect 8
There was a chasm created by people leaving the industry after the RDR, but several years in firms have now regrouped and are starting to recruit again. At Aspect 8 several paraplanners have become CF30 qualified recently as they had the skills and wanted to progress, so it made sense.
Managing director, Yellowtail Financial Planning
My paraplanner is a CF30, as will be the next two I hire. There is value in having an authorised individual who can take on advice work, while the adviser takes on a client-relationship management role. It is a flexible way to meet rising demand and if that demand continues, I am sure firms will take on more staff.