The number of financial advisory businesses in the UK have remained somewhat stable over the last five years, despite facing tougher regulatory and compliance conditions.
A Freedom of Information (FOI) request sent by International Adviser to the Financial Conduct Authority (FCA) revealed that the number of advice firms today is pretty much the same as five years ago.
According to FCA data, in 2016 there were 5,351 licenced advisory businesses, which then grew to 5,476 in 2018, and then fell to 5,353 as of 31 March 2021.
This is despite the fact that it was believed the advice industry would have shrunk significantly following the Retail Distribution Review (RDR) in 2013.
The FCA failed to give any context or reasons behind the rise and fall in advisory firms. This may have been due to the introduction of pension freedoms in 2015 and the impact of the defined benefit transfer scandals in 2018 on the industry.
The ever-increasing industry fees, levies and skyrocketing professional indemnity (PI) insurance premiums may have also been a factor in the recent decline.
Appointed representatives
IA also found a similar trend in the number of advisory firms that have appointed representatives: 630 in 2016; 635 in 2018; and 596 in 2021.
They do not include advice firms with introducer appointed representatives, the FCA clarified.
But in the overall financial services sector, the number of companies with appointed representatives has increased over the last five years, after a dip in 2018.
The regulator said there were 6,891 in 2016; 6,691 in 2018; and 7,046 in 2021.
Against forecasts
Keith Richards, chief executive of the Personal Finance Society (PFS), told IA: “While the number of financial advisers operating remains steady, the more significant point is that they have increased marginally since the introduction of RDR on 31 December 2012, when most experts forecast significant contraction of up to 60%.
“The need for financial advice is becoming more evident due to economic, policy and social changes and demand is starting to grow.
“The advice gap that was identified by the Financial Advice Market Review (Famr) in 2016 has increased, compounded by increased regulatory burden, volatility of professional indemnity premiums and the ever-increasing cost to fund the Financial Services Compensation Scheme levy which is likely to force more advice firm exits over the next three years.
“The PFS has offered government alternative solutions to stimulate debate and continues to call for Famr II. Both in the UK and other regions, many of the challenges facing the public can be caused by a lack of financial education, planning and resilience and we have called on both government and regulators to work with the sector to raise greater financial education and awareness. Time for tripartite action.”
Simon Hattington, senior policy adviser at Pimfa, added: “This is good news and tallies with research we put out in our recent Financial Adviser Market in Numbers report.
“While we have long-standing concerns around the impact of regulatory and compensation costs on the industry and willingness of firms to continue participating, it is good to see that, at present, numbers remain stable.
“It is crucial that firms feel confident in their ability to grow as the industry needs to turn to creating talent pathways for new advisers to enter the industry. Despite all of the challenges that this industry has gone through over the preceding 15 months, it is resilient and in rude health.”
