Ah, the corridors of power – where memories are as selective as a dessert menu at an overpriced restaurant. Today, we find ourselves watching former gatekeepers of the UK financial advice industry engage in a bout of historical amnesia over the “decimation” of the very sector they were meant to protect. But lest we forget, the plight of the financial adviser hasn’t exactly been a tale of woe but rather a tale of bad products, poor value, and an oddly persistent habit of not learning from mistakes.
Let’s set the scene at the turn of the century. We had the home service market, a charming relic serviced by insurance companies who peddled “financial advice” that was little more than a zero-sum game. The product? Mediocre. The value? Debatable. Unsurprisingly, hundreds of thousands of advisers saw their jobs go the way of the dodo. But we mustn’t linger here; by the next decade, we had new players at the table.
Enter bancassurance. Banks thought they could have a go, and so began the next round of selling “advice” that still left consumers’ pockets suspiciously lighter. Cue the layoffs – tens of thousands this time. Then came the FSA’s almost-but-not-quite approach to banning commission, twice, deciding perhaps it was best to let the market breathe. Until 2013, that is, when the FCA swooped in with what they called a “ban on commission.” Yet, I look at today’s 3% initial advice fee and 0.5% ongoing fee, and I struggle to see the difference. A rose by any other name would still smell like commission.
Now, here we are, left with under 28,000 advisers, a far cry from the robust industry that once was. These remaining “advisers” still cling to the term, catering only to the wealthiest 8% – those who can afford to part with a few grand. These elite clients may even feel they’re getting “value,” though that value can sometimes seem subjective.
Yet, here lies the rub. Financial advice was and still is a sales industry dressed in the finery of guidance, hawking poor-value products with a not-so-subtle focus on sales rather than genuine value. In an age where transparency has finally started to pierce the fog, the market’s cry for real, value-adding planning is clearer than ever. But this isn’t what’s happening; what’s happening is a slow realisation that the emperor’s clothes may not be as visible as we once thought.
Take Sir Howard Davies, former FSA chair, who recently shared his own lamentations over the effects of the Retail Distribution Review (RDR). Apparently, the advice market has “significantly reduced,” leaving those with less than £100,000 unable to find advice they can afford. According to Davies, RDR tightened regulations to such an extent that firms no longer found it feasible to provide advice to “ordinary” clients. They couldn’t possibly meet the compliance requirements and turn a profit unless their clients had significant sums to invest. What a shocking revelation: make a product expensive, and the market withdraws. It’s almost as if the handwriting had been on the wall all along.
Meanwhile, Singapore observed the UK’s missteps and thought better of replicating them, preferring instead a more balanced approach. Yet here we are, debating in British fashion whether this whole ordeal has left the most vulnerable without guidance. And the former chair, echoing this sentiment, seems baffled by the market’s retreat – as if the shift from products to value-driven planning wasn’t inevitable.
In a recent hearing, Davies even hinted at the “competitiveness objective” set forth by the government, though he remains sceptical about its potential impact. He acknowledges a multitude of “difficult” regulatory measures passed by parliament – measures that then place the burden of reform on the regulators. So, the industry now faces the “cross-eyed controller” problem: aiming at growth, competitiveness, and consumer protection simultaneously and, in turn, hitting nothing.
But here’s the real takeaway, in case the corridors of power have once again clouded the memory banks. This tale is not one of “poor availability of advice” but of poor-quality advice peddled for years until transparency stripped it bare. Had the market focused on true planning rather than sales, perhaps the advice industry wouldn’t be scrambling to reframe its own history today. As for Davies and his selective recollection, perhaps a look back at the naked truth of what truly led to the downfall of the advice industry might serve as a reminder for those who claim to protect consumers.
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