In anticipation of the FCA’s implementation review of RDR this year, the report issued by APFA highlighted a number of factors in the post-RDR world, most of which centre on the decreasing number of advisers in the market and rising industry costs.
In the report, APFA concluded that, in order to help firms, the regulator should not make any further regulatory changes beyond those already planned, and reduce regulatory costs.
Regulatory changes
The number of advisers has dropped from the first FSA calculation in 2011, which estimated that around 40,000 advisers were active in the market, of which 26,000 worked for financial advice firms and the rest for banks, building societies or other financial institutions.
This figure dropped to 31,000 in total by January 2014, with 22,000 working for financial advice firms. The biggest decrease was in the bank and building society sector, which lost 60% of its advisers. Financial advice firms saw 15% of their advisers exit.
Meanwhile the number of firms registered with the FCA increased 5% from 2011 to December 2013.
APFA urged the FCA not to introduce new rules, but to allow the existing rules to bed down. It said advisers need time to developed their business models and, while evidence shows that most firms are adapting well, there are a number of firms concerned with how sustainable their business is.
“Given there are already further rule changes in the pipeline, firms need some time to consolidate their position, ensure they are complying with all the existing regulatory requirements and prepare for the changes that are on the way,” the report stated.
Costs
Despite a drop in advisers, revenue from regulated business for financial advice firms has remained steady, at around £3.8bn annually, for the period spanning 2011 through 2013.
The cost of regulation is seen by many firms as their biggest challenge in the years ahead, while those consumers for whom it is not economical to seek advice are increasingly sourcing information on the internet.
Research revealed that a significant amount of firms’ costs arose directly from regulation, especially for smaller firms. These costs included not only the fees and levies firms have to pay, but also indirect costs such as regulatory reporting and ensuring compliance with the rules.
APFA suggested that the regulator needed to be more focussed on finding ways to reduce the costs on firms in order to foster a competitive advice market where consumers can access advice at a price they are able to afford.
Have objectives been achieved?
Most outcomes which the FCA set to achieve through RDR have been partially achieved, the report said.
Outcome 1: An industry that engages with consumers in a way that delivers more clarity for them on products and services
APFA concluded: It is not clear whether all consumers understand the different types of services and related costs. Findings from the FCA’s thematic review indicate that the disclosure of a firm’s status to clients is now working as the FCA expects, but more work needs to be done on the disclosure of a firm’s fees to clients.
Outcome 2: A market that allows more consumers to have their needs and wants addressed
APFA concluded: The adviser market is shrinking but evidence suggests there is sufficient capacity within the market, although not all consumers may be able to access it.
Outcome 3: Standards of professionalism that inspire consumer confidence and build trust
APFA concluded: FOS data demonstrates that the financial adviser sector continues to generate one of the lowest level of complaints, and the uphold rate is significantly lower than for many others sectors of the industry.
What next?
APFA’s research report concluded that there is opportunity for the regulator to reduce bureaucracy and costs on adviser firms. This is needed in order for a competitive and sustainable adviser market to flourish, to enable consumers to access advice when they want it at a price they can pay.
