Britain’s financial advisers are becoming a little cheesed off at the latest so-called crusade by regulators to make the industry a safer place for consumers to venture.

Advisers will be required to hold ‘a statement of professional standing’, according to a consultation paper on professionalism issued by the UK Financial Services Authority (FSA) at the beginning of the week.

The paper, which is open for responses until September 24th, has not gone so far as mandating advisers to join a professional body, but has suggested advisers would need to hold a statement of professional standing, to provide independent verification they are meeting new professional standards under the RDR.

However advisers believe over-egging compliance is only going to result in one thing – higher costs of delivering advice that will have to be paid by the end consumer.

Comments on one industry website were particularly furious and irate with the FSA.

‘I think a lot of people are getting totally bored with the strategy changes to RDR, Statement of Principles, licensing, CPD, policing, which form to sign?, compliance, FSA, FOS and the list goes on and on. I am all for compliance and accountability, but it’s gone beyond the stage where it’s even understandable. How on earth are members of the public supposed to understand when a degree educated, chartered practitioner with 25 years industry experience, with a perfect record in sales, now needs to employ a consultant costing £45,000 a year to translate all the papers coming out of Canary Wharf? When the costs are tagged on to client invoices, the FSA then complain we are possibly overcharging. Our invoices now show a supplement of £43 per hour, which we are able to easily justify under the heading “FSA and regulatory costs“. I wonder whether this is compliant???’

Another found the FSA’s suggestions just as irksome.

‘When will regulators learn that new people (advisers) need different things to those who have been in the industry for rather longer than they like to remember? The NHS is getting away from this approach and the FSA are bringing it in. After 50 years of acquiring knowledge going to two seminars a month listening to people who probably know less than we do is not appealing. Please, please… after you have been in the industry a reasonable time, you learn by finding out, not going to seminars.’

It seems that while the wheels were already in motion on RDR well before the financial crisis became a reality, the boom-bust cycle often associated with investment markets is also how regulation works.

Metaphorically speaking, when it comes to regulation it’s often a case of foot off the pedal then when it all goes pear shaped – foot back on the pedal.

The foot on the pedal from a regulatory perspective is always going to raise the cost of doing business – as more attention is required to ensure certain processes, forms and procedures are followed.

This cost in many cases will have to be shouldered by the industry or the advisers themselves, as unlike the comments from the adviser above, not all adviser clients in the UK will accept a £43 additional charge on their invoice – and for some this could be a trigger to look elsewhere or not at all.

It might be easier to pass on to existing clients, but one thing is for sure, it is certainly going to be tricky with new clients as it’s often a challenge just to get these people over the line in the first place.

The spirit of regulation such as RDR is to create greater transparency and also to protect weaker or vulnerable parties from the unscrupulous practices of those who would otherwise look to take advantage – a noble mission.

However by the end of a typical process of creating new rules and regulations, we invariably loath to find out that there are still cowboys out there and there are always victims who fall for their scams.

What is critically important for the UK market right now is that financial advice needs to be a more inclusive service which more people can access.

Despite this need, the feeling among many of Britain’s advice community is that the regulators are simply going to push people away and make the barriers to access advice (chiefly pricing) above what many people would be prepared to pay for such a service.

This raises other topics of discussion, such as how can the advice industry raise the level of value – be it real or perceived – that clients receive from engaging with a financial planner?

A discussion to be had another day…

Suspension Spills Trouble

The suspension of the next three quarterly dividend payments from BP has suddenly alerted many to the issue of concentration risk, or the high proportion of dividend income that comes from relatively few companies.

The risk is evidenced by the fact that five biggest shares in the FTSE 100 index accounted for 46% of all dividend income from UK plc in 2009.

So by being forced to retract a dividend it had already declared, BP gave the UK stock market a nasty psychological shock and led to a scrabble among equity income funds to find ways to make up for a source of income they had been counting on.

One solution is to invest more widely among mid and smaller cap stocks in the UK market. While the public at large may be facing austerity, following the recent Budget, many companies have already taken action to cut costs and restructure and as a result are now seeing good cash generation and can support their dividends.

Investors are also starting to look abroad for dividend income. The equity income sector may be largely a UK phenomenon, but this does not mean fund managers need to invest solely in the UK for equity income.

Aberdeen Asset Management has launched a Latin America income fund and JP Morgan Asset Management has brought out a global emerging markets income fund, while others are looking at Europe for income, as it becomes a more mature equity market, with more emphasis on dividend payments.

One reason UK investors like equity income funds is that they have generally outperformed equity growth funds over the last 10 to 20 years. A reason for this is that over longer time periods, a high proportion of a share’s total return comes from reinvested income, rather than capital gains.

But it is arguable that by showing a strong preference for dividends, shareholders can distort rational decision-making at companies, which then under-invest in their long-term growth prospects in order to maintain dividends and keep the share price up.

So perhaps the BP dividend cut might lead to a re-appraisal of dividend policies and how much investors rely on dividends.

Certainly, investors should look at the issue of concentration risk in their portfolios and may find investing overseas for income to be an attractive option. And some companies may consider the sustainability of their dividend policies and if it impacts on the longer term.

As the emerging markets grow in importance, it is more likely that we will see investors holding emerging market stocks for income, as well as for capital gains. But one message is clear; equities are volatile assets and unforeseen disasters, such as BP’s inability to cap an oil leak in the Gulf of Mexico, can turn off what seemed a stable income stream for UK investors.