Expect consolidation of adviser market to ‘pick up pace’
Increased pressure from the Regulator and the changes to dividend tax rates will impact smaller businesses, prompting an increase in consolidation, even as advice opportunities grow, predicts Fairstone Group CEO Lee Hartley
Fairstone Group CEO Lee Hartley believes that not only will consolidation of the financial adviser market continue but it will start to accelerate, driven in large part regulation. “I think there’s no doubt that the Regulator would prefer to supervise a smaller number of larger firms. If you look at the increasing capital adequacy requirements and the increased regulatory costs the Regulator is imposing on the industry, that is going to put pressure on smaller businesses,” he says.
Hartley believes further pressure will be exerted by enhanced reporting standards and, sooner rather than later, the Regulator will move to set the minimum qualification standard at Chartered level.
Those forces will drive smaller firms to be absorbed into larger companies, with chartered status, he believes. “And that in turn will help drive the industry to become more of a profession than it is today.”
Consolidation will be further driven, he believes, by pressure put on principals of smaller firms by the Summer Budget. “If you are a small business owner taking a good proportion of your income from post tax profits, you are going to be impacted by the changes to dividend tax rates announced in the Budget. As will any advisers with property portfolios from the tax changes for owners of buy-to-let investments,” he says. “This will add to the pressures on principals and I think many more will be looking for a way to get capital out of their business and relieve themselves of those pressures.”
However, Hartley believes that at the same time many advisers will still want to stay in financial advice, as significant opportunities are opening up for financial advice. “If you take the wider view, I don’t think we could ask for a lot more than we’ve got open to us now,” Hartley says. “As someone who started a financial advice business in 2007/2008 when things were hard, we now have so many opportunities. RDR is very positive in the way it is driving financial advice; I would love our business to be seen as a professional service in three to four years’ time rather than as part of an industry.
“We’re also seeing our markets expand. Workplace pensions will create a million potential new clients in the next few years and the mortgage market review has made the mortgage sector interesting again.
“But the biggest help we’ve been given as a business and as a sector in the last 12 months is pensions freedoms. It has added an extra 10-20 years requirement for financial or investment advice to almost every client. With an aging population and new pension rules, whether or not we go to a more ISA-rules based pension structure, retirement planning is the boom area for the industry.
“The cascading effect of all of this will make the next 5-10 years very interesting for the financial advice market.”
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