Change of advisory model spells less choice
Hargreaves Lansdown, a major player in retail investment with £55bn under management, is ditching independent advice and moving to a “restricted model”.
The day after it made this announcement, Old Mutual Wealth said it is coming to market with a restricted advice offering for consumers.
Many other major financial services companies have announced their strategies to sell their products directly to the public in what will be restricted advice models. It can only be concluded that there will less choice for the consumer as a consequence.
An independent adviser is required to research the entire market of products and providers when advising their clients, a restricted adviser is not. The distinction was brought in by the Retail Distribution Review (RDR) under the Financial Conduct Authority (FCA) in January 2013.
It is surprising to witness this reduction in choice when the FCA states on its website that its objectives (set out in the Financial Services Act) include the statement, “We promote effective competition in the interests of consumers”.
If it is in the interests of consumers to have the widest possible choice when being advised on their investments and financial affairs, then the FCA is failing to meet that objective.
Independent advice is usually offered by small firms of financial advisers many of whom are approaching retirement. FTAdviser, a trade financial journal, reported in May 2015 that nearly 30% of Independent Financial Advisers were looking to sell up in the next two years. If true, there will be even less choice for the investing public in the not too distant future.
How did things get so bad you might wonder? The costs of being in business have been a big contributor to reducing numbers of independent advisers. Researching the entire market of retail investment product providers is not cheap.
Added to this is the cost of paying for compensation to victims of financial malpractice. Financial advisers are required to pay a levy to the Financial Services Compensation Scheme (FSCS) which provides recompense to victims of mis-selling and negligence.
Often the culprits are out of business so the remaining good advisers are forced to pick up the bill. Many advisers are angered by the fact that they pay for what is effectively a short-coming in the regulator which should have prevented the mis-selling in the first place.
The FCA needs to do something and soon to rebuild the advice industry and ensure it meets the objectives it was set by parliament. If they don’t ordinary people will be left poorer in more ways than one.