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Nic Cicutti: Stop with the advice market doom-mongering

With RDR proving to be more beneficial than most were willing to accept, is it time to look at change more positively?

Many years ago, in my card-carrying leftie phase, I recall being impressed by a quote from the late Chinese premier Zhou Enlai, who, when asked about the impact on society of the French Revolution of 1789, is reputed to have replied: “Too early to say.”

Zhou’s gnomic comments appeared to suggest that the long-term effects of historic events cannot always be analysed immediately after they have happened. It may take decades, perhaps even hundreds of years, before their true consequences are fully understood.

It was only after Zhou’s death that it emerged this famous quote, made in response to a question by US foreign policy adviser Henry Kissinger in 1971, actually referred to the impact of the French students’ and workers’ revolt in May 1968.

But while there may be times when we have to wait for generations to understand an event’s influence, at others we can discern the truth in a few years.

Nowhere is this more the case than in the area of financial services, whose entrails are regularly picked over by commentators while the carcass is still warm.
The aim, supposedly, is to provide an accurate interpretation of the state of the industry, hopefully as a guide to future action.

In reality, one of the favourite sports of some self-styled experts is to use whatever facts are to hand to prove the point they want to make, reinforcing their own prejudices and those of their audience at the same time.

So it was, for example, that during the endless discussions about the impact of the RDR before it came into effect in December 2012, the overwhelming sense was it would prove to be a disaster for advisers.

Just about every potential catastrophe that could befall the industry was laid out in advance. The drive for higher levels of exam-based qualifications would push advisers out of the market. The move from commission to fees would cause havoc to their incomes.

Profits for firms would collapse, decimating the market as everyone took shelter within the newly created rank of restricted advice.

Indeed, tales of imminent apocalypse were two a penny back in 2009, 2010 and 2011.

This makes the FCA’s most recent retail intermediary market update so fascinating.

It tells us total reported annual revenue from retail investment business increased from £3.95bn to £4.42bn, or 12 per cent, between 2017 and 2018. The revenue for 2018 was up by a stonking 58 per cent on 2014.

The growth in income comes while levels of commission paid to intermediaries in the retail investment market continue to decline, from 20 per cent in 2017 to 17 per cent in 2018.

This reflects a trend in evidence since the implementation of the RDR at the end of 2012.

The other intriguing aspect of the new FCA figures is what they tell us about the advice firms that are the most successful.

The average retail investment revenue per sole trader business was £164,082. Average pre-tax profits were almost £89,000 and average retained profits were £32,000.

In contrast, firms with between six and 50 advisers had average retail investment income of £194,000 per adviser. But the average pre-tax profit per firm was £457,500 and retained profits were an average of £192,000.

Average retail income for firms with more than 50 advisers was on a par with sole traders – yet pre-tax losses per firm averaged £539,000, providing further proof, if ever it were needed, that some of the bigger advice firms are shockingly bad at running national businesses.

But it also shows that sole traders and small firms who were forced kicking and screaming to revise their business models – and some might say they have done everything possible to avoid embracing fees more fully – have nonetheless done extremely well since the RDR.

The irony is that I recall how, back in March 2010, trade bodies and even research by the FSA gloomily predicted up to 20 per cent of IFAs would leave the sector within two years. The FSA’s own study by the consulting firm Oxera found that up to half of firms with revenues under £50,000 were either “very likely” or “likely” to close or sell up.

What very few people noticed was that Oxera’s research was predicated on what IFAs were telling it they would do. In other words, the oft-quoted pessimistic stories every trade body was making use of were based on IFAs following through with their threats to leave the industry. And, of course, they didn’t.

Do adviser trade bodies still matter?

What does all this tell us? One of the lessons is that deliberately spreading a doom-laden scenario to make a political point and boost your trade body’s membership needs to stop.

As for Zhou Enlai, he was both right and wrong. A few years is all it has taken to prove that the impact of something as seismic as the RDR has actually been far more beneficial for advisers than most were willing to accept at the time.

Nic Cicutti can be contacted at



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Nic. What is more likely to have impact is the average age of advisers and the relative lack of newcomers to replace those who intend to retire in the next 10 years. Given the amount of grey hair at most seminars and conferences I attend adviser numers will fall below 20000 in the not too distant future unless we can promote financial advice as a profession to aspire to.

  2. Nick you are so right. RDR has been great for most advisers & for the public. Of course there have been winners & losers. The winners are the public who have investable assets & advisers who have developed the proposition to attract & keep these clients. The losers are those members of the public who don’t have enough assets to make them attractive as clients.

  3. Christopher Petrie 27th June 2019 at 5:35 pm

    Spot on Nic. I well recall often predicting, on these pages, that RDR would be the friend of the IFA and the enemy of the Banks.

    I took some stick at the time but I was convinced it would happen thus. And it did.

    The first comment to this article makes me chuckle….the old “average age” of the IFA and “where’s the new blood going to come from?” questions again.

    I’ve read for the last 30 years that the average IFA age is 56. So either they were all actually mid 20’s at the time or they’re all pushing 90 now!!

    The reality is that older advisors retire but younger ones take their place. Advisor numbers are moving up, to around 26,000 now and given the current demand for advice, that number will surely rise.

    Of course, the smarter IFAs know all this already. The grumpy ones will continue to grump.

    • @ChristopherPetrie Wasn’t being grumpy in what I said just reflecting what I note around at seminars, workshops etc. In fact my firm is training from the ground up, we’re a 2 IFA firm but I do not see too many firms doing this. It appears to be SJP and Intrinsic and others that appear to be doing so. We’re also participating in a Student Placement scheme here in Dorset being pioneered by Kevin Forbes (Strategic Solutions and Regional Chair of PFS) and Bournemouth Uni. But given when I started in the industry there were 270,000 advisers and there are now less than 1/10th of that number, I still stand by my comments that FS needs to be promoted more as a career choice and pathway from university on a par with accountancy etc.

      • Christopher Petrie 1st July 2019 at 6:24 pm

        That all sounds good Kevin. With smaller and larger firms now training young advisers, I’m sure overall numbers will carry on going up.

        But never to 270,000 again….that was 1 in 100 jobs at the time being financial advisers!!

        The reality was those numbers just reflected the huge margins in what was, at the time, an unregulated heavy sales industry.

  4. If your sole argument Nic on the RDR’s success is monetary then your card carrying leftie days are well and truly in the past.

    Welcome to the capitalist party brother !!!!

    Oh hold on…. wasn’t the RDR’s main aim to serve the consumer, not advisers ?

    Commission ban …err its still here ! (whispers) its called a fee !
    Better adviser education …. err well we past some exams, proving we had the knowledge but needed a piece of paper to prove it.
    Better consumer protection …err I don’t think so, the FSCS is being lent on more than ever, arguably this cost us more than our PI (it does me)
    Reduce consumer charges…..err that had the opposite effect.

    RDR achieved what it set out to do …

    Reduce adviser numbers.
    Make advice the preserve of the wealthy.
    Ensure the longevity of regulation (well the bureaucrats in charge)

    Better get your red knickers out the bottom of your draw Nic, and rejoin the fight for the people.
    Stroll into work Monday morning proudly waving your banner wearing your red knickers, down with the Capitalist pigs !!!

  5. We’ve crossed the line to being a profession rather than an industry – a good thing

    Yes, we need new blood but necessity is the mother of invention

    We need to find a way to encourage savings but without incurring charges that are off putting. The proverbial advice gap.

  6. There were inevitably many predictions about the effect of RDR, and, of course, some would come to pass and some not.

    It is wise to be careful with dates. The effects of RDR started when the writing was on the wall, long before it came into force. Measuring from the latter, is going to be misleading. RDR did affect adviser numbers, they dropped materially from the highs of previous years. For example, there were 27,000 in 2009 and 24,000 in 2013, that’s not an insignificant drop.

    There’s no doubt advisers have done very well out of RDR. But let’s not forget the effects on clients that IFAs and their trade bodies were predicting too, and have proven deadly accurate.

    Wealthy clients have fared well, they have better quality advisers and they have better transparency over products and costs, though that has come at material increase in the latter. Middle and low income/asset clients have largely been disenfranchised, just as predicted. The irony is that the FCA have protected clients from having car crashes by taking away their cars. Box ticked.

    It would be very easy for advisers to keep quiet and rake in the benefits and cash but to their credit they still campaign for changes to help those disenfranchised. But that’s another story…

  7. Yes Nic you are right.

    The main antagonists to the RDR were the Networks. They were worried that their model of bring everything down to the lowest common denominator would be a busted flush, with higher qualifications. Also their hold on their members purse strings would also be threatened by the move to fees. I well remember the debates when I was on AIFAs board. True there were also individual Luddites. “Why do I need to know about stuff I don’t deal with?” “I have been advising for 15/20 years I haven’t got the time nor do I need these qualifications” and so forth.

    My only issue with the RDR was that it left great holes. Life assurance didn’t need the qualifications and commission was till paid and the higher qualifications weren’t that high anyway.

  8. Julian Stevens 1st July 2019 at 8:29 am

    Any argument about whether or not the RDR has been good or bad depends on how you define it. If it’s just what was originally presented to and approved by Parliament all those years ago, it’s probably good.

    The problem is that since then the FCA has gone way beyond its original remit and has run amok like some crazed bull in a china shop, imposing on the industry endless new and additional rules, regulations, procedures and protocols which, to a large extent, have achieved little other than to muddy the waters and push up costs. What is abundantly clear is that consumers simply aren’t interested in most of it. All they want to know are what am I going to get, what’s it going to cost, what are the risks and what will it cost me to get out? A 12 page SR with three or four times as much again by way of various illustrations, KFD’s, Fact Sheets and all sorts of other appendices is counter-productive to the clarity and simplicity of that message. Yet the FCA remains grimly and immovably wedded to the fantasy that burdening consumers with more and ever more information engenders greater engagement. A wealth of evidence shows that this simply isn’t so. Too much paperwork causes consumers to switch off and engage LESS, not more. I changed my car about a month ago and I still haven’t got round to reading all the paperwork, much of it dictated by the FCA ~ somehow, I just keep putting it off because all I want to do is drive it and know I can afford the monthly payments. How can the FCA not see this?

  9. The RDR served to drive out many older advisers who had offered a valuable service to their clients over the years.

    It also enabled the regulator to amend the dictionary by altering the definition of independent from one that was fully understood by the consumer to one that has them collectively shaking their heads once it’s explained.

    Thousands of consumers were prised away from bancassurance and left without a source of advice.

    Success, pull the other one mate.

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