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 British Association of Professional Financial Advisers (APFA).
The report 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.
The number of advisers has dropped from around 40,000 to 31,000 in total by January 2014. 4,000 of the redundancies came from financial advice firms, but the biggest decrease was in the bank and building society sector, which lost 60% of its advisers.
APFA urged the British regulator 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.
Despite a drop in advisers, revenue from regulated business for financial advice firms has remained steady, at around £3.8bn (€4.7bn) 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.