Advice firms are unable to invest in services to support customers in the wake of the introduction of pension freedoms because of the burden of FSCS levies, Apfa warns.
In its submission to the Work and Pensions select committee’s enquiry into the availability and affordability of financial advice, the trade body warns of the impact of the rising cost of regulation on the sector.
To illustrate the point it compares the total FSCS levies for the sector – £216m – to retained profits of £171m for 2014.
It says: “If the levies continue at this level, there is no capacity for firms to invest in the future.”
Apfa has also told the committee providers are seeing more enquiries than advisers in the wake of the new retirement freedoms and called for better sign-posting from Pension Wise.
It says while many advisers have seen an increase in interest from customers, it was exceeded by the numbers contacting providers directly.
The trade body says 87 per cent per cent of advisers have seen new business enquiries increase in the aftermath of pension freedom, but the average number of enquiries received was just eight.
Based on an approximate adviser population of 23,000 firms, Apfa estimates that the total sum of enquiries received since April is 150,000.
Apfa says: “To provide some context, in the early weeks, pension providers were receiving 200,000 calls a week, and the FCA reported that by the start of July, 60,000 had taken advantage of the new freedom.”
As a result, the trade body argues Pension Wise must do more to signpost the services of the sector.
“The take up of Pension Wise is reported as relatively low. We believe it needs to be given more prominence in communications from pension providers and the service itself needs to better explain the benefits of taking financial advice.
“Where the cost of the service is obviously a barrier to take up, it is important for prospective clients to understand that a conversation with a financial adviser costs them nothing until they have agreed a fee.”
However, Apfa also admits some advisers are wary of picking up clients keen to immediately access their funds, or transferring from a defined benefit to defined contribution scheme.
According to a study conducted by the trade body, 55 per cent of advisers have had requests to transfer from DB to DC, with many also reporting clients calling up to request “a letter” with no interest in actually taking advice.
In such cases, Apfa says more certainty must be given by both the FCA and the Financial Ombudsman Service.
It says: “In our view, in such cases, a client going against a financial adviser’s recommendation is likely to be common and the FCA and FOS should be clear that there is no risk in assisting a client in such circumstances.”
The committee is taking written evidence from interested parties until the close of 28 August.