IFAC director Charlie Palmer explores regulation and change in financial services.

 The retail financial services industry is the change-game.  The IFA industry has shrunk from 250,000 advisers to under 25,000 today.  Mortgage broking to the retired has replaced new pension saving.  Half the new mortgages are to the over 65’s today.

My most popular articles this year has been on Mifid2.  Arguably unnecessary, expensive to implement and not much help, it has also come at a difficult time for IFAs.   The Senior Managers Regime starts at the end of this year.  Does that explain the unsettled feeling you get at the end of each day?  CF10’s working alongside free-wheeling entrepreneurial founders looking to “take the firm to the next level” will fear being pinged for failures and will want to put the brakes on growth.

Following the Lighthouse proposed merger with Quilter, one third of the IFA industry now rests inside either Quilter or SJP.  Not bad when the model is a two-finger salute to the RDR.  Small IFAs have meantime flatlined like one of Darwin’s collections stored in Formalin, with ever increasing visitor numbers but no increase in supply or content.  “Below the radar”, they whisper and cash cows too!

Consumers are turning away from mass market advice, to make their own mistakes as witnessed by the vast amounts of sub £30k withdrawn from Occupational Pensions Schemes without advice and the NEST roll out, which ranks alongside the Lottery Fund in the ability to fool the poorest in society into thinking it is worthwhile to join in.

The regulator today controls the individuals, regulates the products and monitors the advice itself.  With three lines of defence it’s a wonder we still have scandals.

What to do about it?  The monopoly granted by HM Treasury to the FCA, means no one can remain an island in this world of change.  Help is required, and there is plenty of choice for advisers.

Either join a network, get the support you require in a support group, or pay for enhanced advice with compliance support. 

Network members struggle with two universal laws.  Firstly, reverse economies of scale, as the bigger the network, the more time they will spend on compliance due to enhanced FCA scrutiny and the second law is the lowest common denominator theory.  One bad apple and all that.

For those who seek support groups, they can join as members of Cherry online forum and use hidden identities, which is just as well when you see some of the questions!  A recent post asked “can a refugee with no visa get a mortgage?”  Well you have to learn somewhere. 

When I was running my network Financial Ltd, the FCA asked us to keep a register of mortgage brokers who had asked dumb questions, thus we could compile a list of firms who needed reining in.  It is worth remembering that when you phone your friendly FCA you might find your own name on their own fools register!  

The third way to offset that individual risk is to link up with compliance support firms who have been there before, get their advice in writing and follow it.  What blame can you get for that?

All is not doom and gloom.  Automation is catching up, and time spent on near automated Suitability Reports is falling every month, as firms develop systems.  Text based conversation collates information directly onto the customer file and allows for quick search and will in the near future replace or replicate the Suitability Report.  The administrators’ role will be increasingly redundant, just as Microsoft put paid to the secretary 20 years ago.

All regulation is good for business.  It drives the weak and part timers to the wall, increases barriers to entry and enhances the profession.  Customers seem willing to pay.  An FCA licence today is a valuable thing.  If you don’t have a licence, it can take you up to six months to get one and if you stumble across a major mortgage deal, you need to be prepared to take life’s opportunities.  They will come and you need “opportunity luck” for success.