This hasn’t just been a new year, as those M&S food ads might have said. This has been RDR’s First Birthday Celebration. It’s a sumptuously ecstatic feast of succulent new culinary concepts, personally tailored for every customer’s palate and dietary lifestyle, and then lovingly sourced from the whole of the market.
All matured for a whole twelve months in a gentle drizzle of softly reassuring talk from the new standards inspector, Martin Wheatley, whose eagerness to court the customer is getting just a little too sugary for some tastes. But who hasn’t left us advisors in very much doubt that he’s still got the meat cleaver handy at the back of the cupboard.
But enough of all that. Twelve months in, the system has had an opportunity to bed down and the period of regulatory grace is coming to an end. The Ucis crunch started at the beginning of last month, and the crackdown on EIS is getting under way. By the time that end of trail starts to become a reality in April, we should really start to see where things are going.
But hang it, April is too long to wait. Which is why IFA Magazine launched its own mid-scale survey of adviser sentiment, canvassing a representative sample of professionals on their hopes, their aspirations, their achievements and their disappointments since RDR. And the results, presented by publishing director Alex Sullivan to the Compeer summit on Regulatory & Investment Change in London, were properly remarkable.
Remarkable partly because of the seamless way that so many respondents seemed to have settled into the ways of post-RDR. Remarkable because they seemed to have so few gripes about the way that the regulator was treating them. And remarkable because they seemed to be doing more business rather than less. All of which goes very much against the grain of what was being predicted three years ago when IFA Magazine was first being planned.
Who are the Clients?
Our survey of 188 advisers covered a broad and pretty representative cross-section of the UK adviser community, with 61.5% coming from one- or two-man bands of various sorts, and with another 31% offering between three and ten client-facing advisers. Okay, the five who hailed from firms with more than 50 advisers were perhaps a little on the thin side, proportionally speaking – but then, it was always going to be the smaller firms that would have the most interesting things to tell us about the post-RDR experience.
60.8% of our respondents reported that they were handling client assets of £50 million or less, with another 20.4% in charge of £50-100 million and only five advisers (presumably the five big ones) more than £500 million.
So far so good. But how does the client structure of our chosen cohort shape up? Again, there were few surprises, with high net worth consumer clients representing a ‘large’ proportion of client business for 27.8% of our sample and a ‘medium’ proportion at another 21,1% – while smaller consumers represent a ‘large’ proportion of business at only 17.5% of the respondent firms and a ‘minimal’ proportion at fully 26.5%.
Corporate business – pension plans, investment and so forth – accounted for a dominant share at 15.8% of the businesses surveyed, but for another 65.8% their significance was considered to be ‘small’ or ‘minimal’. That’s something that’s likely to change in the near future as auto-enrolment kicks in for the majority of smaller employers – but for the time being that’s the way it stands.
Predictably, it’s the mid-level consumer who is still very much the bread and butter staple of the industry, with 20% of our sample telling us that these middle earners represent a ‘large’ proportion of their business and another 55.9% a ‘medium’ proportion.
It’s interesting also in the light of evidence that adviser numbers are rising rather than falling. Only last summer, the Financial Conduct Authority reported that there were 32,690 retail investment advisers working in the UK in July, a 5% increase on the number recorded by the outgoing FSA in December 2012.
Even more surprising was that the FCA said the increase was due to advisers re-entering the market. How could that be, we asked ourselves? Didn’t it fly right in the face of reason and experience?
And so to the tricky questions. What do the nation’s IFAs think of the real situation on the ground, now that the fuss has died down and the full terrible impact of RDR has been felt to its fullest extent?
The results were surprising, and not a little gratifying. And not just because they confirmed the story that we’re hearing from other sources.
43.8% of our respondents reported that their client bases had grown in the 11 months since RDR, and 65.3% said that client assets had also grown. Only a tiny 4.3% recorded a strong disagreement with the proposition of rising client assets, although 10.4% disagreed strongly with the idea that their client bases had expanded. It’s possible, of course, that those respondents have been actively restructuring their activities away from smaller clients so as to focus on bigger players; we couldn’t properly tell.
But what’s this? It doesn’t seem to be the fees question that’s putting the clients off. Only 9.2% felt strongly that fee levels were creating pressures on their relationships with their clients, although a more substantial 28.1% seemed to feel it was having some sort of an impact. But a solid 37.6% disagreed with the proposition, and another 15.1% said that they had no strong feelings either way. As a voting majority, it would probably have been enough to swing an election.
The most likely explanation for the cheery expression on our correspondents’ faces was to be found in their responses to our questions about how they were reshaping their businesses.
Fully 54.6% of the respondents agreed with the proposition that they were building up their financial planning activities – thus confirming the stories we’re hearing from the accrediting bodies about a major increase in chartered planning qualifications. This, we’ve always been assured, is the way forward for advisers trying to move in on the client-centred imperative. And by the look of it, British IFAs are taking active measures.
Is the workplace pensions business growing as expected? Not as much as forecast, unfortunately – only 7.1% reported a strong growth in demand for clients, although another 25.5% said that business was on the up. On the negative side, 46.8% disagreed with the proposition in the question. It’ll be interesting to see how the same respondents feel in future years, as auto-enrolment is extended to cover all employers with more than 50 staff in April 2015 and most others in April 2017.
The Learning Curve
To judge by these responses, the multifarious burdens of whole-of-market and increased compliance have not been overloading the average adviser too heavily. Fully 61.5% agreed with the proposition that whole of market had not presented them with any significant challenges – and only 3.3% strongly disagreed with that statement. Although, as other surveys have revealed (see inset), some of them are finding the technical learning curve a bit of a challenge.
So what about the transition to trail-free by April 2016 – the date by which the last remaining legacy arrangements need to have been switched to the new system? The news was less good.
A full 42.9% of our respondents said that they were not yet on course to achieve the scheduled changeover – more than the 40.1% who agreed that things were going to plan. To some extent that’ll be because the transition to clean share classes is running late – not so much the fund providers, who have no option but to be on time for April 2014, but from the platforms, many of which are still in a dither about how to represent the new reduced AMCs to clients. We’ll be looking for better leadership from the FCA on this point.
Where Do We Stand Now?
And so to the final section of our questionnaire, which asked about the way advisors see themselves in the brave new post-RDR world. How tough is it proving to be an independent, and especially a small one, amid the sharply increased regulatory requirements that seem to be piling in from all sides?
The first question would have been a no-brainer if it hadn’t been for the likelihood that some of our respondents weren’t independent anyway. When asked whether the preservation of the I in their IFA description was crucially important, an impressive 70.2% declared their agreement. And a mere 17.4% disagreed – possibly because they didn’t think it a relevant question. Either way, 178 of our 188 respondents voted one way or the other, so that still gives us a crashing vote of favour for the Independent camp.
Our question about professional indemnity insurance suggested that the problems with high premiums or reluctant insurers aren’t being experienced everywhere. Although 56.5% reported problems, it was significant that so many didn’t. There have been a number of PI initiatives coming in from networks and professional organisations over the last year. More, please.
Of the many reasons why PI premiums are going up, the continuing absence of a cap on long-term liability is probably the most pressing. The FCA is still fudging on this issue, remember – and, even though it’s rare for anyone to be sued more than 15 years after the event, the nagging fear of being the exception was probably what prompted a massive 75.4% vote in favour of the proposition that it was an ‘urgent concern’. Of whom 33.5% declared themselves in the ‘strongly agree’ camp.
And yes, not one single respondent voted strongly against.
And so to our final two questions. Yes, a decent 45.5% of our respondents said they were looking at improving their platform arrangements, but to be truthful it would have been surprising if they’d said anything else. Rather, the 54.5% who didn’t think it was such a big deal is the key statistic here. There’s an over-abundance of platforms at the moment, and it doesn’t seem to be taxing our respondents greatly to find what they need.
Do advisers need more help with compliance? Is the Pope a catholic? It doesn’t particularly surprise anybody that this question got a 54.5% vote in favour of needing more help in the future, and only 3.4% strongly disagreed. The future is, indeed, a long time. And the FCA is still figuring out whether or not being Mr Nice to the client is going to mean going back to Mr Nasty where the intermediaries are concerned. This one will run and run.
Epilogue: The Question We Dared Not Ask…..
We’d planned to include a further question about how clear the nation’s advisers are feeling about the way that the FCA is communicating with the financial fraternity. What’s the telephone support like? Are there enough Policy Statement and Consultation Papers coming out, and are they clear enough? How confident do advisers feel that the new, consumer-friendly regulator will continue to beam benevolently on the industry?
And you know what? At the last moment we bottled out. Not because we didn’t dare ask the question – but rather because it would have brought in such a multitude of different answers that we couldn’t devise the questions that would bring all the answers together.
So it’s over to you. Tell us what you think about the way the FCA is working. We want to know how well it’s answering your questions, and how easy you find it to get the information you want.
Tell us about the FCA’s new website. Is it organised well enough? Does it work well in your internet browser? (Our experience favours Google Chrome over Microsoft Internet Explorer.) And anything else at all that’s bugging you.