The Ever Increasing Circle

On the one hand….

Like many advisers, we do some pro bono work. For example we provide advice to a small number of clients (mainly friends and acquaintances) who, had they not been friends and acquaintances, would not be clients. This is because they wouldn’t be able to afford our fees.

We aren’t elitist. We don’t have a minimum ‘funds under management’ – we log and charge time, so if someone wants to pay our small retainer fee and a couple of hours a year, that’s fine by us. But most people with less than, say, £100k of investable assets can’t afford to (or don’t want to) pay our fees.

Our hourly rates need to be at a certain rate to be profitable. That means they need to cover our costs and a bit more. If they don’t, we won’t exist.

A significant portion of the cost of our business is due to Government activity. Whether direct costs (FCA fees, PI premium, FOS contribution, etc) or indirectly (high cost of advisers due to high qualification requirements), the demand the Government has put on advisory firms has led to high costs, therefore high fees, therefore many people now can’t afford financial advice.

One the other hand…

The Government set up the Money Advice Service so that people who can’t afford advice have somewhere to go. This was in part funded by a levy on adviser firms (£3.7m).

The Government has now just announced that the IFA community is going to contribute towards the establishment of another organisation, the guidance guarantee (to be called Pension Wise), in order to give ‘at retirement’ advice to those individuals who cannot afford their own adviser. This will be in part paid for by a levy on adviser firms (£4.2m).

And the consequence was…

This seems to be an ever increase circle. As advisory costs go up so fees must go up, meaning less clients employ advisers. More firms leave the industry because of rising costs, meaning less advisers to be employed by clients.

Which in turn will lead to the need for more Government sponsored advice.

Which will be paid for by the adviser community….

Which leaves the question…

Which firm is going to be the last one standing, dealing with all the wealthy clients whilst simultaneously paying a gigantic levy to cover the cost of the advice for the rest?!

(Thank you to Michelle Abrego of Citywire for the statistics)