A former head of a financial advisers’ trade association has predicted that more than 20 million people in the UK may lose, or have already lost, access to financial advice.
Garry Heath, former Director General of the trade body once known as the Association of IFAs, is compiling his own ‘Heath Report’ on the extent of the so-called ‘advice gap’, and intends to publish his findings in November 2014. He has managed to obtain responses from members of Parliament’s Treasury Select Committee (TSC), and these contributions will be included in the final report.
Mr Heath says that 3.5 million clients were serviced by an adviser who has now left the industry. Three million more remain ‘attached to an adviser’, but according to Mr Heath, these advisers are no longer able to service them. He estimates that this figure of 6.5 million could rise to 14.5 million. He also adds a further six million people who were previously clients of bank advisers, taking the potential total to 20.5 million.
Many banks have ceased to offer financial advice in their branches, or only now offer it to higher net worth clients. It may be a fair point to ask what quality of advice these clients were actually getting, and whether they were in fact being sold to rather than being advised, but even so many of these people are unlikely to have been taken on by another adviser.
Levels of financial literacy amongst the general public remain low, meaning that there is a need for widespread access to genuine financial advice.
The Retail Distribution Review (RDR), which came into force at the start of 2013, banned the payment of commission by product providers to investment advisers. Advisers can now only be remunerated via fees paid by the client. It was always feared that this would mean that, in order to remain profitable, advisers would be forced to stop seeing clients whose income and/or assets were below a set level. Other advisers left the industry prior to the introduction of RDR, in many cases because they did not wish to attain the additional professional qualifications required. Another contributing factor is that the average age of an IFA is now estimated in some quarters as being as high as 58, meaning that many are leaving the industry on reaching retirement age.
A more conservative estimate of the scale of the problem came from the Director General of the Association of Professional Financial Advisers, the successor organisation to Mr Heath’s Association of IFAs. Chris Hannant said in January 2014 that he believed that almost 60,000 people may have been turned away by financial advisers in 2013.
The advice gap issue has previously attracted the attention of Martin Wheatley, chief executive of the regulator the Financial Conduct Authority. Appearing before the TSC in September 2013, he said: “It is a concern that people with portfolios below £50,000 to £100,000 are not getting the same service they were getting.”