When you plan your business it's very important to know about what's going on in the industry - particularly recent important developments and the direction in which the sector is moving. The financial services industry is a dynamic one where important changes happen fairly often.
What has been happening in the financial services sector
One of the most significant events during the last couple of decades was the creation of a single regulator for the whole financial services sector. Previously" the sector was regulated by a number of different bodies such as the Personal Investment Authority (PIA) which was a self-regulating organisation (SRO) for those retailing financial service products. The Financial Services and Markets Act 2000 brought regulation under one roof - the Financial Services Authority (FSA) which became responsible for authorising all those engaged in regulated activities. In 2013 the Financial Conduct Authority (FCA) took over the FSA's role. Anyone thinking of entering the financial services market should be aware that regulation will apply to many aspects of their operating practices and that the cost of complying with regulation can be high.
Demand for life pension and investment products tends to reflect the state of the economy as a whole - demand increases when the property market is healthy levels of personal disposable income are high and unemployment levels are low. However in recent years underperformance has led to a decline in consumers' willingness to invest in pension and investment products because of the low level of return. What's more the recent economic downturn meant that people had less money to invest in financial products and many families and individuals are still feeling the pinch despite an improvement in the economic situation. On the other hand those fortunate enough to have spare money to invest have been put off cash savings accounts by very low rates of interest leading to record numbers turning to stock market investments in the hope of a better return. From April 2015 people retiring have been able to access their pension funds instead of buying an annuity and this has led to an increase in demand for financial advisers' services. Many have registered on the Money Advice Service (MAS) online Retirement Adviser Directory to offer face-to-face or phone/online financial advice to people confused by the new pension freedoms. The government has proposed to introduce a £500 'pension advice allowance' from April 2017. This would allow people to withdraw £500 tax-free from their pension pot towards the cost of getting independent financial advice on their retirement options.
IFAs have a healthy share of the financial services market because clients value independent unbiased advice particularly as there is such a bewildering range of life assurance products mortgages pensions and savings products on the market. Demand is likely to carry on particularly as the government is looking for ways to make it easier for people to get advice on investments and pensions. However the industry is increasingly competitive and you will have to decide whether:
- there is sufficient demand in your area to support your proposed business
- you will be able to compete with other local financial advisers
- you will be able to comply with all the regulatory requirements
Unfortunately the financial services industry as a whole has been dogged by a succession of miss-selling scandals with the possibility of more to follow. Needless to say this has done nothing to improve the image of the industry.
To improve professional standards in the financial services sector new rules were brought in. These were introduced as a result of the Retail Distribution Review and applied to the sale of retail investment products from the beginning of 2013. The new rules include a requirement for IFAs to achieve higher professional qualifications and also ban IFAs from receiving commission on certain products. Instead advisers must set their own charges for giving advice on these products and agree to these with their clients. It's possible that commission will eventually be banned on all financial products - the FCA has indicated that they are keen to do this.
The FCA Conduct of Business Rules requires IFAs to give customers details of their services and how much they cost. Until recently this information was provided in an Initial Disclosure Document (IDD) and a Menu document. These have been replaced by a single simpler disclosure form called the Services and Costs Disclosure Document (SCDD). You can find out more about the disclosure documents you must give to your customers on the FCA website.
Keeping up to date with developments
The FCA is the regulatory body for the financial services sector and can provide a great deal of useful information. It has a special section on its website for small firms in the financial services sector. Visit their website to find out more.
Joining a professional body is an excellent way of keeping up to date with developments in your industry. Organisations representing financial advisers in the UK include:
- the Association of Professional Financial Advisers (APFA)
- the Personal Finance Society (PFS) which publishes a bi-monthly journal for members and also offers online assistance with the technical aspects of pensions taxation and investment planning
- the British Insurance Brokers Association (BIBA) " which represents insurance broking firms and provides guidance to members on regulatory matters
You can find out more about these organisations and get contact details on their websites.
Subscribing to a specialist journal like Financial Adviser or Investment Adviser (both part of the FT Adviser portfolio) will help to keep you in touch with industry developments that affect you.