Are we creating a perfect storm where potential clients can no longer access a financial adviser? A number of developments in the adviser market might be pointing that way, especially if they all converge at the same time. For example:
- Not enough advisers. This has been an issue for the advice market since RDR in 2012, when almost half of advisers left the market. These simply haven’t been replaced. Tom Selby of AJ Bell recently suggested (FT Adviser 20/2/20) went further and suggested that many advisers are simply not taking on any more new clients. Part of this might be as a result of Pension Freedoms coming into force in 2015, with more clients moving into pension drawdown and needing more active advice reducing the time available for new clients. Certainly, at CCFPS, we are constantly looking at our capacity to advise new clients because of the requirement to build in enough time for regular reviews to take place.
- Professional Indemnity Insurance (PII) premiums increasing and the reduction in PII capacity. All adviser firms are required to have a minimum level of PII cover in order to protect clients. However, the PII market is commercial and underwriters are by and large currently reducing their exposure to risk, especially in the advice market. That means higher premiums and in some cases no cover being available. Especially in certain advice areas like defined pension advice.
- In addition, as we’ve reported before, advice firms are facing huge hikes in fees both to the Financial Conduct Authority (FCA) and the Financial Service Compensation Scheme (FSCS). One of the effects of these increases is to make it too expensive for firms to continue to operate in the market, or to be unable to continue because they can’t find PII cover. This is obviously affecting the number of advice firms and advisers.
- Attacks on the adviser market generally by our regulator the Financial Conduct Authority (FCA). Recently the FCA have launched a series of “attacks” on advisers including the suggestion that firms are harming clients through poor advice – especially in the defined benefit pension advice market, but also in the pension drawdown market. As an adviser firm we find these attacks difficult to stomach, especially given that the financial advice market is one of the most highly regulated in the UK. There are always bad apples, but to tar all advisers with the same brush is hard to take and breeds resentment. The other recent accusation is around adviser charging, suggesting that charges are too high. This is set against the rising costs of regulation and PII which we’ve already highlighted and creates an unnecessary negative image of the market. The FCA are not helping advisers with this negativity as lots of older advisers are simply deciding to leave the market which only feeds into the main issue which is a lack of advisers!
All these factors are combining to make it more difficult to find an adviser – especially if you have more modest levels of savings. So, take advice now whilst you still can. You don’t know what the market might look like in a few years’ time, or even less.
It is a strange situation because what’s happening flies directly in the face of what should be the FCA’s sole objective which is to ensure that financial markets function well so that customers get a fair deal. Presiding over a reduction in the number of advisers overall and the number of advisers able to provide specific advice – on defined benefit pension transfers – for example, doesn’t seem to fit with that objective. Or the objective to reduce consumer and social detriment where people are not able to access the right products. It seems to me that by not tackling the rising costs of regulation and attacking advisers, that FCA are doing the exact opposite of what they are supposed to.