The regulator has reported that adviser numbers rose during the first six months of the year. Is this a sustainable pattern or should we expect numbers to decline?
The most recent figures on UK financial advisers released by the Financial Conduct Authority (FCA) were encouraging to those who had perhaps feared the onset of the Retail Distribution Review (RDR) would inspire many to leave the profession.
The figures, taken from the end of December 2012 to midway through the year, showed there had been a 6% rise in the number of financial advisers operating in the UK - from 20,453 to 21,684.
The news that the industry ranks had in fact grown in the immediate aftermath of RDR was a reassuring sign and was quickly followed up by news from the Association and Professional Financial Advisers (APFA) that a number of IFAs expect to expand their business in the next six months.
What path will adviser numbers take?
These figures showed that 15% of firms are planning to recruit more advisers, while 19% are looking to recruit or make more use of paraplanners or administrators. Just 1% of advisers expect to leave the industry within the next six months, while 12% are planning to slim down their business through refocusing or restructuring.
The immediate conclusion to draw from these headline figures is that the industry has shouldered some of the burdens presented by the RDR without too much trouble.
However, the RDR undeniably came with its own set of challenges, many of which have not yet been felt. Do these figures represent an industry moving confidently forwards or would it be more realistic to expect adviser numbers to take a downward trajectory in future?
APFA senior technical adviser Linda Smith is positive on the outlook for the industry but continues to warn IFAs on the impending hike in capital requirements.
The FCA has ruled that firms must be able to access capital equivalent to either four weeks expenditure or £15,000 by the end of this year, depending on which is the larger sum. This then rises to either eight weeks expenditure or £15,000 by December 2014, before rolling up to 13 weeks expenditure or £20,000 by December 2015. The denoted capital must be accessible within a 90 day notice period and includes all regular contractual outgoings.
Smith said: "The fees can be a barrier for the small firms. It is not just the capital you need, it is also about the fees and the professional indemnity insurance, the ongoing regulatory costs are quite high and, of course the compensation scheme is a big issue.
"[Adviser numbers] have gone up slightly but it is still considerably down on what it was at the end of 2011. It is positive but not that positive."
These financial pressures represent one obstacle but so does the issue of active recruitment, particularly among smaller firms. Any industry which hopes to grow needs to be able to rely on fresh talent.
The APFA figures reflect anticipated activity but only to the extent that can be measured around existing market participants. Objections have been raised to the pressure the RDR has placed (or will place) on new entrants, and the inevitable path an industry which struggles to attract new blood will take.
P&P Invest partner Philip Pearson said: "I believe there is a ticking timebomb in the IFA industry. In my opinion, over 30% of IFAs are within ten years of retirement. If you are under 40, you are in the small minority. Most of those people are planning for their retirement within the next few years as regulation continues to increase and the margins within our businesses get ever tighter.
"I do not believe there is enough recruitment coming in presently to cover the expectation of the numbers which will fall off a cliff in the next few years. Most small firms are not interested in recruiting because of the extra risks and costs."
Pearson said industry numbers will continue to come under pressure due to the cost to firms of running any sort of apprenticeship scheme or new joiner schemes.
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