27th March 2013
The numer of financial advisers has fallen dramatically due to a big government reform. The retail distribution review, a big shake in the way financial advisers charge you for their advice has led to roughly a 20 per cent fall in numbers according to the new regulator the Financial Conduct Authority.
This development could certainly could make it more difficult for you to find an adviser. The numbers – outlined in detail by trade website Money Marketing suggest a precipitous fall in the number of bank advisers by around 40 per cent, a 20 per cent fall in the number of other financial advisers and a smaller fall in those calling themselves wealth managers and stock brokers.
All in all, the number of financial advisers, arguably the key group, fell from 25,616 to 20,453.
This may not matter to you, if you have an established relationship with a financial adviser or wealth manager. It might matter if you do not, because it may make finding an adviser more difficult.
The reasons for the fall – more exams but better qualified advisers
But what are the reasons for this fall? Well, first advisers have had to increase the level of their qualifications – the new minimum is roughly double what it was last year. They have also had to brush up their all round knowledge, a process known as gap-filling. While some advisers had asked for the regulator to grant more experienced advisers a pass on some of the qualifications – known as grandfathering – it refused. Some advisers then refused to study and have stopped advising or perhaps become specialists in mortgages and protection where they can operate at a lower level of qualifications.
But as we say, if you have an established adviser this is good news for you as your adviser will definitely be up to speed. The top qualification remains chartered – that is not part of the minimum standard – but it puts an adviser on a par with accountants and the like, so you may want to consider this if you are changing adviser or selecting one for the first time. Chartered advisers may change more however.
The way you pay for advice has changed too
The second change is that pretty much all commission payments on pensions and investments have been banned. Your fund manager, pension company and wrap platform can no longer pay commission to advisers certainly on any new advice and new business.
This system has been in place since the turn of the year. Your adviser may still be receiving trail commission usually of 0.5 per cent of your investments, though these payments are expected to fade away as individuals obtain more advice, while protection insurance plans such as critical illness and income protection can still pay commission.
Your adviser should have had a discussion with you about the new system of adviser charging. Providers and platforms can still facilitate a payment to your adviser, but you have to agree to its level. The whole idea is to break any suggestion that an adviser is biasing his or her recommendations to get bigger commissions or advising a change simply for the sake of collecting a commission.
Once again, many advisers have decided to leave the industry or find other roles. Some businesses will have faced a cash flow squeeze and decided to sell up.
Mindful Money has considered some scenarios that could now affect you
1) You may be asked to pay for advice in a different way and decide to do so. We suggest you make sure what all the sources of income for your adviser are, and whether you agree with them. Legacy trail may form part of the adviser charge and that is fine as long as you understand it. But remember the charge will be funded largely out of your pot of money, though as we say insurance is a little different. Make sure you understand what services you are receiving for this money. You should note that with the shrinking of adviser numbers, the cost of advice may rise. You should consider whether you are still happy with this.
2) You may decide not to pay for advice. There are a number of execution only services that offer some guidance and indeed online planning tools that can help you determine your risk attitudes and the sort of amount you should be putting in a pension. However these are only guides. Your adviser may even help you become more a transactional client i.e. he or she may help you plan your finances but not make recommendations or they may point you to a website that can help with simpler issues. They may offer to advise you for specific issues – say retirement planning, or annuity purchase for a specific fee.
3) Your adviser may have been independent, and is now restricted i.e. is not searching the whole market but restricted to fewer firms and product types. This is allowed under the new rules. We think a good question in this case is to ask your restricted adviser can this more restricted range really meet all your financial needs. Make sure you are satisfied with the answer.
4) You may find it more difficult to obtain the help of an adviser. Clearly the numbers have fallen. We suspect that advisers will be managing down their client bases to concentrate on more valuable clients. This could raise the average hourly fee, but more likely is that they won’t advise you unless you have assets above a certain level – this can be anywhere between £40,000 and several hundred thousand, though £50,000 to £100,000 sounds like the sort of range most advisers are talking about. It may be a case that you simply have to look a bit harder. There are sites you can use to find an adviser such as Unbiased.co.uk which helps you find an adviser near you simply by typing in your post code. We think if you look hard enough, and don’t expect advice to be free, then you should still be able to find help. Even if you don’t have assets near the sort of minimums talked about, an adviser may be able to help you say with setting up a protection insurance policy. In addition, if you are younger, your parents’ adviser may offer advice across the generations.
The biggest fall in numbers has been with bank advisers which is interesting, because a lot of independent advisers thought that banks would be the big winners in all this. It seems that banks have proved less flexible when it came to the new charging and qualifications regime. While not all bank advice was poor, a lot of it left much to be desired. There have been countless concerns raised over the last ten years about the quality of recommendations and failure to explain investment risk and understand client and customer needs. It may be that the fall in bank numbers is really for the best.
Cursed and blessed
The overall fall may deny people access to advice, and that isn’t necessarily a good thing, even if the reforms themselves are good news. You may have to try a little harder to find an adviser and make sure you know what you are getting for your money. Or you may seek other sources of information and do more yourself. Some consumer journalists think the reform is unquestionably a good thing because commissions led to biased advice and misselling. Undoubtedly in many cases, this is true. But it could leave some people trying to do things themselves when they are not really comfortable doing so. But the better informed you are, we think the more likely it is that you can make the reform work for you.