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Nic Cicutti: The doom-mongers on advice are being proved wrong

The mantra that everything is terrible for the advice sector has been confounded by the hard numbers

One of the sometimes frustrating aspects of the FCA’s approach to divulging information about the financial services sector it regulates is the process tends to be far too piecemeal. The data published by the regulator does not always provide all the answers the industry needs in order to understand themes and trends, for example, whether the market for advice is growing or shrinking.

In part, this is because the significance of any information provided by the FCA goes beyond a question of mere statistics. It often has political implications for the sector as a whole, as well as trade organisations that operate in it.

To take a case in point, for years now there has been a school of thought that has argued the advice sector is reducing in number as a result of the RDR – and that there is a dangerous “advice gap” developing for millions of consumers who are unable to access advice because of this drop in the number of advisers.

I do not need to name names here, everyone is aware of some of the individuals involved in putting forward this line of argument.

The true picture

If this set of propositions were largely or wholly true, then not only would this confirm the worst fears of the doomsayers, it would validate their view that the only way to respond to this unhealthy set of financial developments would be to join a trade body determined to ensure such a state of affairs is not allowed to continue.

Unfortunately for them, despite the FCA’s sometimes random approach to data provision, focusing on things it finds “interesting” rather than creating a regular series of key indicators that allow us to form a judgement on issues, its data bulletins do occasionally offer a partial snapshot of some areas of interest, providing us with an oblique snapshot of the state of the market.

Profits, people and price: Crunching the numbers on the advice marketAn illustration of this is evident in the regulator’s most recent data bulletin, which offers an analysis of data taken from the retail mediation activities return provided by advisers on an annual basis.

A number of things stand out. The first is in the three sectors covered by the RMAR – mortgages, retail investments and non-investment insurance – there has been a growth in business volumes between 2015 and 2016.

For mortgages, revenue growth reached 24 per cent year-on-year. In insurance, it was a still respectable 5 per cent, while in retail investment the growth was of 8 per cent. In the four years between 2013 and the end of last year, revenue growth was up 25 per cent, from £2.6bn to around £3.3bn.

What is also interesting is this retail investment revenue growth came from a steadily increasing number of advice businesses, up about 8 per cent to 4,970 at the end of 2016 compared with 2013. Not only that, but according to Apfa, which recently produced its own report, the number of advisers has grown by 1,000 in the past year alone.

A similar picture emerges when you look at retail client contacts. The data bulletin records that while contact between advisers and clients ceased in about 123,000 cases, there were 562,000 contacts between new clients and advisers. In other words, there was a net uptick of almost 440,000 clients in the 12 months up to the end of December 2016. There were 2.6 million clients who paid for retail financial services advice in 2016.

Bear in mind this growth is taking place in the context of a sector that continues to move along the inexorable path of fee-paid advice: commission as an income stream fell from 31 per cent in 2015 to 24 per cent last year.

The picture being painted by the FCA is of an advice sector in a good state of health, one that is moreover growing quite substantially.

This is excellent news – and, of course, it goes totally against the grain of the Jeremiahs who have long painted a picture of gloom and doom about the industry.

Fighting back the naysayers

Yes, it is true that – as Apfa’s recent market study also shows – that while turnover is higher, average profits per firm are lower. In 2016 average profits before tax by firm were £145,716, down from £158,667 the year before. There is a squeeze on advisers in terms of consumers demanding services at lower cost.

The evidence is the firms most impacted in a negative sense are smaller one-man/woman bands. The FCA’s own data bulletin shows while the average retail investment revenue was £129,679 for single adviser firms, it stood at £143,000 for firms with between two and five advisers.

The picture being painted by the FCA is of an advice sector in a good state of health, one that is moreover growing quite substantially.

Factor in admin and office costs for the smaller firms and you have a problem that, in the long-term, seems insuperable.

However, the best advisers are able to respond to that demand and are introducing technology to assist with both advice and ongoing service delivery in a way that allows them to keep costs in check.

Ultimately, the industry gets the trade body it wants – and also deserves.

But it would be shame if the oft-repeated mantra that everything is terrible for the advice sector were to propel even a minority of advisers into the arms of those who benefit by making such claims – even when the available evidence proves the exact opposite.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Thanks Nick – Its nice to read something positive for a change. Markets like everything, evolve. This evolution should be embraced and anyone harking back to the days of commission should be left on the roadside, and not – as you point out – be seen as a solution to a problem that doesn’t exist.

  2. Nic

    You are so very right. I have been saying for years that there is really no such thing as the advice gap. I would refer you to:

    http://www.techbullion.com/advice-gap/

  3. Funny, the FCA seem to think there is an advice gap and FAMR is supposed to go some way to fix it. Perhaps this is a case of lies, damned lies, and statistics?

    By the way Nic, what happened to your opinion piece from the 19 May entitled ‘APFA merger is sad indictment of our times’? It seems to have been removed…

  4. Any trade body that begins its about us sections with:

    ‘The independent financial services sector in the UK is currently under serious threat’

    Is either delusional or deliberately scaremongering for personal gain.

    Here’s my view:

    ‘The independent financial services sector in the UK is currently achieving great things for its clients in a professional and transparent manner’

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