13th August 2014
Own Goal Leads Up To 20m Consumers Losing Their Adviser
The Heath Review Editor, Garry Heath has published its interim report today and comments:
”We have published our first results today which shows that RDR has forced almost 7,000 IFA Advisers and 6,000 bank advisers to leave the industry leading to nearly 10m consumers to no longer having access to their adviser. In addition, between 3m and 11m clients may find their adviser no longer has the capacity to service them.”
“Thanks to RDR and the regulator; millions of consumers will face planning for their financial futures without professional help. Instead of protecting consumers, the regulator decided to embark on a social engineering experiment which has spectacularly backfired.”
“RDR has brought into tight focus the need for proper oversight of regulatory activities. It is time for Parliament to take responsibility for the creature it created and control the excesses and costs of the current regulator before all personal provision is compromised.
|
Disenfranchised Consumers |
Best |
Worst |
|
Exiting IFA Advisers |
3,500,000 |
3,500,000 |
|
Clients beyond current IFA capacity |
3,000,000 |
11,000,000 |
|
Number of Disenfranchised IFA Clients (Sub – Total) |
6,500,000 |
14,500,000 |
|
|
|
|
|
Disenfranchised banking clients |
5,900,000 |
5,900,000 |
|
|
|
|
|
RDR Disenfranchised Clients |
12,400,000 |
20,400,000 |
The Heath Report exists to research and explain the basic effects of Retail Distribution Review (RDR) on the access to advice for consumers and hopes to give a voice to those who are often ignored by the current regulatory policy process - The Consumers.
The full report will be issued in late October but an interim report sheds light on the number of consumers who have already be disenfranchised by RDR and how many may find themselves without an adviser in the future.
The Retail Distribution Review (RDR) had 2 strands. The first was an arbitrary requirement for experienced advisers to take and pass new exams of questionable educational value. This pushed older advisers into earlier retirement
The second was a ban on commission and a demand that all consumers paid fees for advice. This changed the way advisers work cutting down on the number of clients handled.
The Numbers
The UK’s Population is 64m;
- 40.6m are either working or retired.
- 23m of them have accessed advice.
- 16m have used the independent sector…
- 6m have accessed the IFA Sector in the last 5 years.
- …and an estimated 7m used banks.
When FSA announced RDR in November 2009; the IFA establishment was 38,750. By January 2013 IFA adviser establishment had fallen by 7,000 to 31,750 as advisers decided to retire or leave the industry rather than comply with RDR. Each adviser had on average 500 clients so..
3.5m IFA clients no longer have their adviser.
In addition, over 70% of banking advisers have been made redundant as banks realised that RDR created a market they could not service profitably.
Another 5.9m bank clients no longer have their adviser. 9.5m consumers in total
In addition, RDR has changed the way advisers service their client banks. Fee paying clients demand more adviser time each and as a result advisers have to significantly restrict the number of clients they can handle. This loss of capacity is still playing out in the market but capacity losses will range between 6.5m and 14.5m clients.
Comments (8)
Worse is still to come in my opinion as the ever increasing burden of regulation in terms of time and cost will force more good advisers out of the market.
The saddest thing is it could and should have been avoided.
Jonathan Kirby 15/08/2014 09:06
These are not figures plucked from the air, but definitive and established statistics. Pity this report cant do likewise.
That there are a very large number of people who dont get advice is evident but:
1. Many are just not interested and never will be.
2. Some are avid DIY ers.
3. There is no real and positive way of actually determining who actually gets advice.
Harry Katz 15/08/2014 09:39
In addition what utter tosh the statement nearly 10m consumers to no longer having access to their adviser is. My doors are still open to prospective new clients as I am sure are many others. More like they are unwilling to pay the cost of advice.
I know this is a learning process for both the advisers and the advised but if there is a demand for the service at a price that someone is willing to supply it there is a market, the size of which will rise and fall dependant on that supply and demand. The 10 million (or what ever the number is) need understand that advice is not free and if they are not willing to pay the market price what ever that settles at they should bid the adviser good day and be on their way.
Stuart R 15/08/2014 10:52
There are 2 elements of the IFA Market the Directly regulated and Network members. Advisers move from one to another
When RDR was first announced
DA advisers 24,712
Networkers 14,031
Total 38,743
In Nov 2010 when the TSC first discussed RDR with the FSA
DA Advisers 21,718 a drop of 12% since RDRs announcement
Networkers 14,575 an increase of 4%
Total 36,293 a drop of over 6%
The last figures I have is April 2014
DA Advisers 20,526 a drop of 17% from RDR announcement and over 5% since Nov 2010
Networkers 12,319 a drop of 12% from RDR announcement and over 15% since Nov 2010
Total 32,845 a drop of 15% from RDR announcement and over 9% since Nov 2010
To complete the picture another potential source of advice is banks
We only have ad hoc figures for the retail bank financial advisers but from a high of 8,658 in December 2011 the last FSA announcement in December 2013 of 3,556. A drop of 59% Given the notices of redundancies given by the banks since; this figure may be sub 2,000 by now making a drop of 77% in banking adviser availability.
You are completely correct in saying there has been a recent increase in DA numbers from a low spot in January 2013 of 19,687 to 21,684 now however these come from networkers moving to DA and bankers coming into the sector. Still only returns the DA sector to circa Nov 2010 numbers.
The net loss circa 12,000 advisers.
The Heath Report is based on the loss of the availability of advice from DA, Network and Bank to the public. The ABI gives 12m individual policyholders who accessed products and advice through the IFA sector. A major consumer research company makes that number 16m which sounds right given those accessing unit trust and similar products which would not be in the ABI figures. The accepted number for banks is 7m with the risk of some duplication with the IFA sector.
Circa 23m consumers of which 1.5m may still be accessing banks leaving 21.5m consumer potentially looking for advice.
The DA and Networks account for 33,000 advisers
11,000 are boutique advisers who on my latest figure have 65 clients each capacity 715,000
That leaves us with 20.8m looking for an adviser
11,000 have segregated their clients and they currently have 300 clients per adviser capacity 3.3m
That leaves us with 17.5m looking for an adviser
The final group I call the Undefined. The last batch of 11,000 advisers to take up the slack each adviser would need to service 1,590 clients
My best estimate is a capacity of 500 clients each = 5.5m leaving 12m consumers out in the cold.
They may self advise but maybe they might like an alternative?
Garry Heath 15/08/2014 11:16
My practice has rin for 36 years. Ab initio I offered the option of fees and either a rebate of commission or an enhanced allocation. In all that time 1 person elected to pay fees. He was a professional who was used to receiving fees himself.
Whether clients are dienfranchised by one means or another (e.g. by unwillingness to pay fees), it's the same effect - they are disenfranchised.
There was and remains nothing wrong with commissions, so long as they are disclosed.
Richard Brown 15/08/2014 11:19
As to of the size of the market for fees you could draw one with the legal profession. The fee paying sector is well established and is the size it is and folks usually only resort to it when necessary or they perceive it to be necessary. That is probably our future with our role highlighting any necessity, promoting (selling) and providing service to satisfy it. As an aside one notable actor in the market is legal aid (good old free at the point of delivery) which in its scaling back no doubt reducing the size of the market. Furthermore I am not getting into the argument about the fairness of access to the law based on the size of your bank balance as that is beyond the scope of this thread.
On the other hand we have the rise of the no win no fee crowd which is effect a commission.
As always there are a lot of folk with wants and needs who are not necessarily willing and/or in a position to pay for them. As a human being I have much sympathy for those who are not in a position to pay but as a businessman none for those who can and will not.
As attributed to Ruskin;
THE COMMON LAW OF BUSINESS BALANCE
"It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better."
Stuart R 15/08/2014 12:03
Stuart R 15/08/2014 12:04
In view of Garry Heath's observation about the qualification regime introduced through the RDR ("The Retail Distribution Review (RDR) had 2 strands. The first was an arbitrary requirement for experienced advisers to take and pass new exams of questionable educational value. This pushed older advisers into earlier retirement") I thought Colette Bowe's comment was an interesting one.
Some background material here http://investing.businessweek.com/research/stocks/private/person.asp?personId=28015383&privcapId=696050
Anon 19/08/2014 12:19
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