Since the so-called retail distribution review (RDR) was implemented, financial advice-seekers have split into two groups – those able to afford advice and those who cannot, according to a report compiled by the Association of Professional Financial Advisers (APFA).
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.
Adviser drop
The number of advisers has dropped from an estimated 40,000 advisers in 2011 to 31,000 by January 2014. The number of advisers working for financial advice firms dropped 4,000 to 22,000. The biggest decrease was seen in the bank and building society sector, which lost 60% of its advisers.
Regulatory freeze
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.
