Almost half (44 per cent) of financial advisers expect their profitability to decrease due to complying with the Financial Conduct Authority’s consumer duty regulations, according to research by Quilter.
In contrast, just 5 per cent believe their profitability will increase, while just under half (46 per cent) said they expect it to stay the same.
Quilter’s research, gathered by Boring Money, also found that a quarter (24 per cent) of financial advisers expect their turnover to decrease, with two-thirds (63 per cent) saying it will stay the same.
Just 8 per cent expect turnover to increase, indicating that advisers do not see a business opportunity in the regulator’s consumer duty which came into force today (July 31).
John Kerr, advice recruitment director at Quilter Financial Planning, said: “The consumer duty is a landmark piece of regulation and has the potential to alter the customer experience for the better from day one.
“With the rules coming into force today, it is important that financial advisers have their systems and processes in place and that these have been communicated across the firm.”
When asked how much, if anything, advisers expect complying with consumer duty will cost their business, the average was £18,161, with a median of £7,500.
For those in a network, this figure came out at £15,076, while those who are directly authorised expect costs of £19,934.
Size of advice firm | 1 adviser | 2 to 5 advisers | 6 to 10 advisers | 11 to 20 advisers | 21+ advisers |
Average cost to comply with consumer duty | £4,925 | £10,563 | £20,208 | £26,666 | £93,325 |
Expected costs varied greatly depending on the size of the firm too, with sole traders expected to see a cost of just £4,925 to comply, compared to £93,325 for those with 21 advisers or more.
For a mid-sized firm with between six and 10 advisers, costs were expected to reach £20,208.
Meanwhile, two directly authorised financial advisers stated that their costs to comply with consumer duty would exceed £500,000.
Kerr said: “Clearly there has been a cost implication for financial advisers and they have fears about what this will do to turnover and profitability.
“However, advisers should seek support externally too. Providers and suppliers have lots of resources out there for advisers to help them through this period of change, while looking to outsource elements of the value chain can ease the heavy lifting.”
Quilter said the consumer duty has caused many financial advice firms to review their business models and as a result this will likely have an impact on the resources available.
While a good majority see turnover remaining static, a large minority see profits falling, highlighting the potential cost implications of the changes required.
As a result, almost a third (32 per cent) of financial advisers expect their customer fees to increase as a result of the regulations.
“The consumer duty needn’t be a drag on your business,” Kerr added.
“Cleaning up and tailoring the customer experience more can be a great way to not only increase customer satisfaction, but also prompt positive reviews and referrals. While there may be some upfront cost now, this will hopefully come to fruition over the long-term.”
sonia.rach@ft.com
