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The reality of why advisers are quitting

For those, like myself, who scan constantly through a wide range of financial services publications and websites, one recurring theme is whether the RDR means consumers will be “denied access” to independent advice.

Barely a week goes by without another apocalyptic warning on the subject. Before starting to write this column, I spent a couple of hours searching through Google. Over the past two years, there have been hundreds of cautionary stories on this issue.

Just to give a brief flavour – in December last year, Sesame Bankhall Group executive chairman Ivan Martin wrote an open letter to the FSA: “The FSA’s own RDR cost-benefit analysis predicts industry costs will soar and we will lose 23 per cent of firms. Importantly, over one in 10 people (11 per cent) who currently have access to financial advice will lose out in the new RDR world.”

Sesame told MPs a month or so later the RDR is already having an impact. In its evidence to a Parliamentary select committee, the network said the overall number of adviser firms in Sesame’s network remained stable in 2010, taking into account joiners and leavers, but of the firms that did leave, 40 per cent said that it was a direct result of the RDR.

In February, the Association of Financial Mutuals – mostly consisting of friendly societies – told the same committee of MPs of its “concern that the FSA’s current approach to the RDR will reduce consumer access to advice and add unnecessary complexity.”

Only last week, it was the turn of SimplyBiz group, whose chairman Ken Davy claimed: “Between one million to three million clients will be deprived of access overnight to their independent, trusted advisers. This will lead to a worsening of the savings gap, the pension gap and the protection gap.”

Thankfully, our Ken is feeling in a heroic mode. At the same time as issuing his dire warning, he also announced SimplyBiz would be “putting a flag in the ground as the champion of independent advice”, by backing the cause for advisers who want to remain independent.

It would be easy to pick holes in some of the comments. For example, Sesame’s assertion that 40 per cent of its network leavers in 2010 and before were doing so because of the RDR.

Really? I would be more inclined to believe that many of those who conveniently blamed the RDR for their departure were doing so for entirely different reasons, such as not being able to hack their jobs.

More seriously, one of the striking aspects of the endless minatory comments about the “loss of IFA access” is they almost always refer to the FSA’s own research on the subject.

The assumption here is if the FSA says people may be denied access to IFA advice, that must be right – quite how people square such blind faith in the same regulator which they profess to disbelieve in all other matters is a moot point.

Regardless, the FSA’s “research” has become the lodestone every adviser uses if they need a handy reference as to how many IFAs will leave the sector. What does the research actually say?

It was published by the consultancy Oxera in March 2010 and the specific section people use in the context of IFAs leaving the industry is: “The actual overall impact on the capacity of the advice market of advisory firms leaving the market is relatively limited.

“If all the firms that indicated that they are (very or quite) likely to exit the market do so, this would result in a 11 per cent reduction in the number of advisers, a 9 per cent reduction in advisory firms’ revenues, and a 11 per cent reduction in terms of clients advised, assuming that this business is not picked up by other firms.”

In other words, the two scenarios Oxera is using to base its research on are first, that IFAs will follow through on their threat to leave the industry – which I don’t believe for a second – and second, that none of these clients will be picked up by other IFAs.

I can accept that many clients are likely to be dumped by IFAs in the next year or two but this is part of a cull that has been taking place for several years now, as IFAs move to get rid of clients whom they do not think make them any money.

As for those clients who are left, does anyone seriously believe an IFA leaving the industry would not be trying to sell any viable parts of their business on, including a healthy client bank?

My belief – backed, incidentally, by research privately carried out by financial providers – is that fewer IFAs than predicted will leave the industry. Among those who depart, their clients will not be dumped at the roadside, unless they are considered “unproductive”.

The harsh reality is if people leave the industry, they will do so because they cannot handle the new demands. No amount of brave, fluttering SimplyBiz flags will save them.

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

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Comments

There are 44 comments at the moment, we would love to hear your opinion too.

  1. Whats going on today?

    All these pro RDR articles comming out on the same day, smells to me!

  2. Sadly your cynical attitude is sad and for many IFAs totally misguided.
    I have been an IFA for 34 years, I love my job, I care for my clients and was hoping to continue for many years to come.
    Sadly the examination side of the RDR which I totally agree with is so demanding, I am struggling with it and am now having to consider my options.
    So to label those who will leave as hacked off with the business, certainly in my case is misguided.

  3. Incompetent Regulators Awards Team 7th April 2011 at 1:29 pm

    If Nick only had to put with such abuse in his so called ‘profession’ as IFAs. In the end the public are not saving due to bad regulations and a bad regulator. We have the proof and history has shown this under the regime of the FSA.

    There are too many people in the beaurocratic side which includes reporters opinions telling advisers what they should do. IFAs have no voice and thanks to AIFA who misrepresented us for so many years with placed men. The word ‘selling’ being a ditry one nowadays, but it did work. Now we have advice!!!!! Sellings was a good thing. No I am not talking about bad selling, good selling is highly professional and better than advising.

  4. I was at a seminar yesterday re RDR where it was commented IFA’s would not advise clients unless they earned at least £700. This was due to the costs of advice.

    I would suggest the segmentation of client banks that providers are saying we must do will mean many – in fact 80% of our clients (as we should only deal with top 20%) will not get advice from an IFA.

    Perhaps this is what the providers want as they will then try and deal with these clients direct.

    What do you reckon? I know we will still deal with the smaller clients as they are our bread and butter and have helped us to get where we are now.

  5. Nic, I admire you for pinning your colours to the mast on this subject but in the long run I am sure you will be dramatically wrong and this will affect your punditry rating quite a lot. Grassroots/grapevine says a different story, suggest you have a plan B for the future. McDonalds perhaps?

  6. “Really? I would be more inclined to believe that many of those who conveniently blamed the RDR for their departure were doing so for entirely different reasons, such as not being able to hack their jobs.”

    This will be the legacy of RDR. Financial Advice is no longer pleasurable because the regulation is ever changing, complex and usually retrospective. With costs rising as everyone (FSA, FSCS, FOS, CII etc) leeches off advisers it often seems as though our businesses exist solely to pay everyone else.

    RDR is a symptom of over-regulation and whether or not you agree with its aims, I doubt anyone would agree with the way it has been implemented.

    Our business teeters on the brink of the next regulation. When you cannot plan or predict the next change, you cannot build a viable, well planned business and you certainly cannot invest in your business.

    Financial advice is no longer a good place to make a living and that is why many good and honest advisers are now quitting.

  7. The FSA reckons 25%. Deutsch Ban 50%, Ernst and Young 30%.

    Nick – whatever the numbers it is the number of abandoned clients that matter. There is no spare capacity so those currently attached to departing IFAs will lose their adviser unless they are collected by another adviser. This will only happen to the most wealthy.

    Worse is that fee based clients will expect more of their adviser’s time – even if you are notionally attached to n adviser you will only get his time if you can afford to pay for it.

    If this happened in the NHS there would be rioting in the streets. You can only have a GP if you can pay for it – very progressive – not

    G

  8. Nic, you obviously have no idea what being an IFA in a rural environment entails. Not for us a large High Net Worth client bank, but lots of clients on low average incomes who do not wish or cannot afford to pay for advice. These will be the people who suffer under RDR. Furthermore at the age of 61 it is extremely difficult to start studying again to pass exams from which I will have 3 yrs benefit, the lack of a Grandfathering strategy was madness. Have a nice time in your protected journalistic world, but your 2 hours research is hardly a thorough investigation of what is happening in the real world

  9. But of course Nick you are the Witchfinder General when it comes to IFA’s. Over the years you have made a living out of portraying a negative image of financial advisers, in some cases deserved but in many others cases unfairly. As a journalist what I have always failed to understand is why you don’t challenge the State, the unaccountability of an FSA big brother that is unelected and unaccountable. At a time when many in this world are fighting anti democratic rule why is it that you don’t seem to give a flying fig for the abuse of power that might otherwise bite you on the nose?

  10. I realise I’m in the minority but I think anyone struggling with the qualifications and spending time with clients who do not make them any money simply isn’t working efficiently. Under those terms, a good income and career progression is not really to be expected. Nic is entitled to be provocative. He writes 20% of the words and the readership provide the rest. Smart use of his time if you ask me! Stop seeing clients that make you no money and pick the books up.

  11. I have on 31/03/2011 departed FSA and wound up my business. 2 points. 1. My wifes boss was asked to pay £600 for financial advice and asked whether I could do it for nothing. He earns circa £150/£200,000 P.A.- he refuses to pay.
    2. No clients will lose advice if IFA’s depart, they will go to the banks!

  12. Hi Nic

    I’ve just ‘Googled’ Phone Tapping Journalism – loads of articles – must be something wrong with your industry. Lets demand you all jump through a hoop otherwise you won’t be able to write those fantastic true articles anymore.

    You only needed your last paragraph to say why IFA’s are leaving – the words “New Demands” from the Regulator. Not suggestions or requests but demands.

    Ken Davy isn’t Flag waving he is trying to put forward some common sense before the industry is ruined.

  13. Who will service, advuise, sell, deal with the orphaned clients.

    It’s all very well saying advisers will sell their client bank but the only value to the buyer is the trail commission. Very few advsiers will want the grief of dealing with 1,000 small legacy clients.

    Towry is and has shed thousands of unprofuitable clients because, like many other advisers, they have deemed it appropirate to concentrate on profit as opposed to service.

    The RDR will be known for many things;

    Disenfranchsing millions of consumers

    Consigning thousands of advisers and their support staff to the bin

    Speeding up the consolidation within the industry

    Spending the industy’s funds in order to achieve this mayhem

    Enabling the regulator to laugh at the TSC

    However, most notably it will be recalled as the event that destroyed an industry.

  14. Martin O'Kelly 7th April 2011 at 3:14 pm

    Cicutti normally draws incorrect conclusions and the conclusions in this article are also likely to be wrong.
    The remuneration mechanism for the majority of IFAs is commission. To withdraw this facility will result in businesses that will no longer be sustainable. To keep on denying this is flawed thinking.
    Moving to a fee based remuneration system will disenfranchise the majority of the population, as they will be reluctant to pay fees. Many will therefore access products, and purchase them, from less knowledgeable sources, such as the internet, banks, etc. IFAs will be used less and less.
    Strategically, if people like Cicutti used a bit more brainpower, then they would understand that some of the proposals are flawed and they should stand against them. To behave like regulatory lackeys is not in the common good.

    O’Kelly

  15. Sorry Nick but you are wrong on some of your points. I am aware of IFA’s who have sold or just shut down due to RDR, et al so there is already a gap left in providing advice. Yes possibly less profitable clients but still people seeking advice. Now those people will pay a fee upfront or take no advice at all. I suspect the latter. The problem is many IFA’s are less busy overall compared to 2008/09 and so the gaps have not shown up yet but they will.

    I suspect your research is a little too city focused. I don’t mind RDR and in fact some part welcome, but the FSA figures are questionable at best.

  16. the reason why advisers are leaving Nic is lack of clients who have no confidence in the economy, less money to spend, low confidence in the housing market – a house was once an asset now a liability – house owners cannot move their mortgage, LTV too high or no equity.NIC your pompous attitude belays a man who those that cannot do become author on how to do it or trainers.

  17. Nick I hate to agree with you re numbers, but for all the wrong reasons. RDR is an afront to all but the regulators and will die a horrible death like CP 121 and the Menu.

    I do hope that one day Journalists will have to be qualified in their given subject before writting about it.

  18. There will be an exodus as quite simply many are close to retirement and RDR just gives us that push…

    You dont have to be a rocket scientist or actuary to work out why.

  19. Dear dear Nic, you appear not to have a real handle on the IFA sector.

    A number of IFA’s will leave the industry, many because of their age and RDR with exams are too much to bear when they have little time remaining to retire. This is qualified by the average age of the IFA.

    The FSA believes clients want to pay for advice, whereas in reality choice is the better option. This way clients whether wealthy or less well off can have the benefit of professional advice.

    We have around 450,000 less advisers than we had 25 years ago and there is your reason why Joe Public aren’t saving enough.

    New adviser numbers will not replace those retiring because it is no longer as attractive to work in and more difficult to enter. Therefore without any growth the country and its residence will continue to suffer.

    Of course there are always the banks for advice, but a lack of trust from consumers will not inspire saving.

    I agree with GH you shouldn’t restrict quality advice just to those who can afford it.

    Finally given that many practices have clients that cannot afford the advice what then happens under RDR & TCF and given that the regulator has proven to be retrospective, what would happen in the event of a client complaining about a policy registered to an IFA agency that pays £2.50 trail?
    It will probably spark more complaints, just what the FSA wants to justify their existence, albeit limited as we are shrinking year by year and numbers will eventually not qualify their place and the banks would have won the day….

    But I live and work in hope…

    Mr.G

  20. Michael Fallas 7th April 2011 at 5:50 pm

    There is little doubt many of many of the more experienced IFA’s who are nearing retirement will be leaving the industry “early” as a result of RDR and that in itself is a loss of their experience which will take years for others to replace. I fail to see how that is progress and in the consumers best interests.

    It will be very interesting to see in a few years time if the quality of advice and costs to consumers is better or not.

    It needs to be as being responsible for all the advice you give until you die is like having a noose around your neck and as one IFA found out recently who was retired and enjoying his life until a client of his who he set up an endowment policy for over 20 years ago complained.

    The system is broken but will RDR repair it. I am not convinced.

  21. Leslie Squires 7th April 2011 at 6:35 pm

    Come on guys, every time you denounce or respond to Nic Cicutti, you give him credence. Ignore him, most that he writes is plagiarised and he is simply uses provocation to gain attention.

  22. Come on chaps wake up smell the coffee we are all doomed.There will be a mass exodus. Final solution, simple as that, just what the FSA idiots have always wanted. RIP.

  23. Please pass the comments to your local MPs. My business will simply fold as a consequence of RDR and my clients will cease to enjoy the service I currently provide. Most of my clients will/can NOT pay an upfront fee and are disgusted that they are losing a choice of how to pay.They are happy with the current commission system and my service. At at time when the economy is poor, there is a massive squeeze on most families (Hector Sants, FSA employees and investment bankers excluded) how can the government or FSA implement a business plan that entails scrap heaping people without a justifiable economic reason. I am in my 50s now and the only future I potentially have is being long-term unemployed. 25 year of work down the drain so please rethink your article Nic and look at the big picture.

  24. I am amazed how many of you know already you are doomed. I doubt many will have actually sat down and drafted a business plan. No throw you hands in the air, toys out the pram and give up. See you later quitters, you deserve nothing, no bottle, no fight. Take your commission ball home and play with the Dodo’s.

  25. Increasingly Frustrated Advisor 8th April 2011 at 9:38 am

    One only has to look at the increasingly vast salaries being offered by bancassurance companies to advisors. They (the banks) know the market is going to swing their way and can afford to attract the ever decreasing pool of qualified advisors.
    Of course this will be fantastic for the banks, great for advisors looking for big salaries, perfect for the providers who don’t care for the clients.
    I am struggling to maintian independence, fighting to keep ahead of the RDR game (some of which I do agree with) and swimming uphill to keep qualifications up-to-date.
    Nic, you are so, so wrong on this one. Please go and re-research your market and come back to us with a truer picture.
    The one group of people who will really suffer are the “little” people who really need the advice, but cannot justify paying for it.
    Please, do tell me how I can offer to advise these people, in a cost effect manner, that keeps them away from the poor, nay, lack of advice they will recieve from banks!

  26. nic should join a circus where they still have bears.
    That way he could enjoy his favourite sport on a daily basis.
    Totally agree with anon @6.35pm
    nasty nic loves to provoke.
    ignoring him is the best way to deal with him. Just as a child who acts in a naughty fashion to get some attention should be ignored, so should naughty nic.He only had 4 comments on his last piece, so quickly spat out another one in order to get the desired response.
    This guy is not a journalist. He is an old has been of a hack.

  27. Julian Stevens 8th April 2011 at 1:26 pm

    Commission, other than on indemnity terms, isn’t really going. Instead, it’ll be called an Adviser Charge, to which the client’s prior agreement will be required (CAR). For all advisers (myself included) who operate more or less on this basis already, and who never take more commission than the services we’re providing are reasonably worth, what’s the problem?

    The transition to non-indemn commission really isn’t at all painful either, particularly in this age of more and more lump sum investment business. It provides smoother cashflow, no clawback exposure and the amount you get paid is actually more. Again, what’s the problem?

    Okay, so the FSA might have thought through this transition a little better, but I think we all have to admit that commission still carries a bit of an unsavoury whiff and changing its name to a Customer-Agreed (deductible) Adviser Charge surely isn’t that cataclysmic, is it?

    Here’s an example of why I support the transition. I recently visited a client who’d been persuaded by his bank to invest £130,000 in their World Income Portfolio (which he didn’t really understand at all), with income being drawn from day one and no use made of his wife’s ISA input allowances (for both last year and this).

    When he received the final illustration (post-sale of course), and had the opportunity to go through it at leisure, he noticed the commission figure of £4,000 and decided he ought to seek a second opinion.

    Cooling off cost him £1,300 due to a fall in unit prices. CAR at point of sale would have avoided that.

    I did twice as good a job as the bank (not actually a great achievement ~ all you guys probably would as well) and agreed with him pre-sale an Adviser Charge of less than half what the bank had been hoping to get away with in commission.

    On this point, I have to say I agree with the FSA. Adviser charging does not mean requiring clients to write a cheque for your fee in addition to what they’re going to be investing.

  28. Nic is there a possibility that you are related to Hector Sants, or do you just socialise with him?
    Why do you like winding people up?
    What a sad person you are becoming!

  29. For those of us that don’t remember this chap used to have a regular feature in Financial Adviser – now he doesn’t?His feature was always designed to create a stir.Self promoting :@?>< always was always will be.Don't rise to the bait (like i just did)

  30. Sounds like the cynical Cicutti has finally found the redemption that has been gnawing at him since his cynical sputterings crawled their way into the financial press. Only a person who tried and failed as an adviser can be as hell bent on talking down our business. I have now read my last Money Marketing. Cant stop the freedom of the press but can sure as hell not read it. Note for diary – Cancel Money Marketing subscription ASAP

  31. Seems to me you prove the very opposite of what your article is about. Whether people can’t hack the new regulation from a practical pointt of view or mentally are sick and tired of being forever bullied and pushed around, the impact is that many advisers will stop and the public will lose access to advice. No other profession has had to put up with the sort of draconian measures that we have and whilst I’m RDR ready I am personally sick tyo the back teeth with it all.

  32. And the reason journalists write rubbish is, they are not capable of setting out a decent article. The only way thet can put pen to paper is because they have hacked someones phone to dig up a little scrap of gossip. They then sit back, smug in the knowlegde that they get paid for this crap.
    They are all the same, a bunch of hacks or should that be Hackers?

  33. Nic, Julian mentions sum good points, and I’m sure you are aware of the following:

    * the fear of “loss of/access to advice” actually translates to “loss of selling opportunities”

    * advice in the IFA form is necessary above a certain level of wealth

    Alan Lakey – you are spot on! RDR will go down as one that destroyed an industry…but one that created a profession.

    All this nonsense about consumer access is now getting rather silly. When will these silver haired experts who don’t believe in exams start to realise that if people do not have lots of wealth or earnings, they only need simple, basic advice which can be provided through a flow chart?

    Eg. no matter what the earnings are, are they protected? if not get some. That doesn’t warrant access to a fee-based IFA. Of course they need to be sold to!

    The fact is, the consumer does not need access to advice until their affairs get to a certain stage. At this point, they will naturally seek alternatives. It’s human nature.

  34. Harry @10.46
    In regard to your swipe at Alan Lakey,
    I take it you are speaking from the viewpoint of a professional. If so you really ought to know the difference between sum and some.
    Not only is it SIMPLE it is very BASIC.

  35. Oops! Monday morning typing error…no doubt spotted by sumone with very few qualifications!

    You really think something as simple and basic as that is worth arguing over?

    I wouldn’t have a go at Alan at all. We can always agree and disagree on certain points so don’t go getting all defensive on me…

  36. Harry @ 11.34
    Whatever.

  37. If I can’t hack my job, I could always get a job as a hack.

  38. Am I the only one who finds the level of English used on tis site to be low? There is NO apostrophe in the plural for the word “IFA.” It’s “IFAs” If we can’t even write correctly why should clients pay us for advice? Come along readers – it’s basic grammar.

  39. Gobsmacked investor 12th April 2011 at 12:04 pm

    I’m amazed that adviser of all people are still thinking of commission as investors not paying for advice. The need for better qualifications is obvious. There is no way on earth, I’d let someone look after my money and advise me on financial matters if they did not explain that the charges on investments, insurance and pensions that come out of my money, fund the commission they recieve. It’s ridiculous. Fidelity make an inital charge out of my investment and pay it to an adviser, how on earth am I not paying for advice. As an investor, I look forward to the day when such shoddy advisers are no longer allowed to operate in what should be a true profession. Our money is important to us. You do realise this website is public domain and investors such as I can see what you are all bickering about. Fee based only for me. My adviser is helping to make me wealthy, not the other way around!

  40. well i don’t plan to leave the industry or sell my clients, I do see me getting paid in another way and that is all.
    Fee Commissions CAR call it what you will.

    The maddness is the cost against any benefit.

    Regulate the courner shops next make them sit exams if they fail close up.
    Are they not just intermediaries selling at marked up rates?

  41. Gobsmacked investor
    What are you on about?
    Advisers do not think paying via commission is free advice.Where do you get that from?
    Advisers must disclose the commission received to the investor, so they know how much it is costing.
    The argument is that some, not all,you included, prefer to pay via commission, rather than upfront fees.
    What is wrong with that. It is a matter of choice. Just as you prefer fees others prefer commission.
    What is wrong with someone wanting to do things differently than you.
    We do not live in a communist state, although the fsa would like us all to behave as if we do.
    Glad your adviser is making you wealthy, some clients have no hope of ever being wealthy, they just need protection for a rainy day or a pension for retirement.

  42. Nic, do you really believe these financial providers?

    They have all lied in past to gain market share!

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