As we approach the anniversary of RDR we are beginning to understand how the marketplace has changed, and how the independent sector has changed. Generally, the impact of the RDR has been felt in an increased administration burden and this has managed to swamp the voice of most practitioners.
My experience has been that there have been a large number of changes, but very few of them were anticipated. Our market has changed.
The independent financial advice sector now claims the moral high ground amongst the professions. CPD requirements for independent advisers are more stringent than they are for any other profession and the qualification levels are now such that clients can be almost certain of at least receiving the best endeavours of a competent adviser. The removal of commission from investment products has removed the most important potential conflict of interest from independent advice. Of course, there remains a hangover from the misdemeanours of the past. Clients trust their own independent adviser, but they don’t trust IFAs.
There has been a reduction in competition for independent advisers. There has been a significant reduction in the number of tied and restricted sales people, most of whom compete with independent advisers.
At the same time, demand for advice continues to increase as the baby boomers reach retirement with their complicated pension and investment arrangements, and the government forces employers to deal with complex pension legislation and set up pension schemes for all of their staff. It is clear that the excess of demand over supply will continue.
The high barriers to entry (such as qualifications and, independence requirements) will remain in place, whilst the uncertainty over capital adequacy requirements remains a deterrent to new entrants.
All of this means that demand for independent advice is probably going to outstrip supply for many years to come. The challenge for independent advisers in the past had always been to find enough clients. The new challenge is to select the profitable clients from those who approach us.
Profitability is also likely to arise from driving down costs. The cost of regulation is beyond our control but there are other costs which we, as a profession, can exert some pressure upon. For example, there appears to be general agreement that the quality of technology in the sector is not what it could be. None of the technology providers engage well with their adviser clients and this tends to mean that there is an additional cost to adviser technology – the time it takes sorting out the minor errors and glitches which the technology produces.
Our trade organisations might benefit from a new focus upon reducing costs, such as this, in the independent sector, rather than fighting small battles against the regulator; a reduction in indirect technology costs would easily outweigh a saving in regulatory fees in our business. The independent sector does appear to have moved on and in the new environment we need to focus upon different issues in order to improve our businesses further.