There are a number of reasons why it may seem like the cost of financial advice is high.
One is very simple – supply and demand. Since 2012 over half of all financial advisers have left the market so there simply aren’t enough advisers to go around.
Another reason is the ever-increasing cost of regulation.
In order to protect consumers, all regulated advice is covered by the Financial Services Compensation Scheme (FSCS), the cost of which falls on to firms providing advice. Unfortunately, the cost of this protection is increasing at a dramatic rate. This year we have seen our contribution to the FSCS levy increase from £4,095 to £5,860 – that’s an increase of 43%. In total our overall fees to the Financial Conduct Authority (FCA) have increased from £6,446 last year to £8,322 this year – an increase of 30%.
In addition, we are required to hold Professional Indemnity Insurance (PII) cover to insure our customers against any future claims against us. At the same time the cost of PII cover is also on the increase. This year our PII premium is over £16,000, which is 21% up on last year.
For a firm like ours these two regulatory costs together add almost £250 to the cost of providing advice to every new client that we see. That’s before we’ve taken into account any staff, overhead, training or compliance costs and of course before any profit. So, it’s no surprise that the costs of advice are increasing and no surprise that prospective new financial advisers aren’t rushing to join the market.
Providing financial advice is a highly regulated and expensive business