Major changes to the British financial advice market will fuel an exodus of advisers out of the industry with 42.5% potentially leaving the industry before 2015, new research reveals.

This is in light of the Financial Services Authority (FSA) last week announcing significant changes to how payments to advisers will be set in future, with the onus shifting to the client and away from product manufacturers.

“..the fundamental point is that the cost of the advice will be agreed between the consumer and the adviser, not between the adviser and the product provider…” the FSA stated in a release.

Many advisers are now under greater pressure than they have ever been in their careers and significant numbers are now looking for an exit strategy.

15.0% are expecting to leave outright by 2015, 7.3% expect to change roles with their current employer and will no longer offer advice, 3.2% will go to another employer (non-advice), while a staggering 16.7% are unclear how their future looks.

The latter group are perhaps waiting to see how the Retail Distribution Review (RDR) in its entirety will shape up and what it will look like under a new Government (in the event the Conservatives seize power on May 6th, although David Cameron’s party has backed the essence of the RDR in its current form).

Interestingly, those who are looking to exit the industry have an average of £6 million less in individual funds under advice than those who will remain according CoreData Research UK.

This is despite those advisers who are leaving having spent an average of five more years practicing as professional planners compared to those who will remain as advisers past 2015.

On the topic of the new payment changes, the FSA stipulated that…

From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product.

In addition, firms will not be able to accept commission in return for recommending specific products.  Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.

The changes also mean firms offering independent advice will have to demonstrate that their recommendations are based on a comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests.  However, if a firm chooses to limit its product range to certain investments or strategies, then the services it offers are restricted, and this should be clearly set out for customers.

Nonetheless, the announcement did not come as a surprise to the industry, with the above outcome broadly expected and the fact there is consensus that RDR will be far reaching.

Meanwhile, the primary nervousness beyond advisers is among the investment administration community (aka platform industry), which is tensely awaiting the outcome of a separate and potentially more significant assessment of the role played by platforms and wraps in a post-RDR world.

The discussion paper ‘Platforms: delivering the RDR and other issues for discussion’ was published last month and the window for anyone who wants to have a say in doing so close on May 26th.

The hammer could fall in a number of ways as a result of this review with so many sub-topics up for discussion.

These include:

• Agreement or not with the FSA’s preference to stop payments from product providers to platforms?
• Agreement or not that any changes to platform remuneration also apply to non-advised business?
• Agreement or not with the FSA’s intention to end product charge rebating?
• Issues relating to inducements and the FSA’s approach to dealing with inducements provided by platforms
• Issues relating to platform use by adviser firms
• Issues relating to re-registration
• Issues relating to the easy transfer of assets away from a given platform

With so much yet to be decided and so much up in the air still it’s not too difficult to understand why so many advisers are uncertain as to their own future.