Fewer financial advisers is good news

New figures published by the Financial Services Authority (FSA) show the number of financial advisers have fallen by 20% over the past year.

These figures are based on an estimate of the number of financial advisers as at 31st December 2011 and reported figures as at 31st December 2012, the day the Retail Distribution Review came into force.

Adviser numbers fell from 25,616 to 20,453 during this time.

The number of bank financial advisers, who would be better described as financial salesmen, fell by 44% during the same period of time.

We can speculate about the reasons for this fall in adviser numbers.

The fall is likely to have been largely driven by higher professional standards introduced by the Retail Distribution Review at the end of last year, as well as improved levels of price transparency.

The age profile of financial advisers could have also played a role, with many already approaching retirement and higher standards being a catalyst to prompt an earlier than originally planned exit from the sector.

Fewer financial advisers is probably a good outcome from the Retail Distribution Review, assuming those that departed the sector were mainly those who were unable or unwilling to pass more stringent exams and be open with their clients about the cost of advice.

We agree with FSA head of investment intermediaries Linda Woodall who said:

“Those who remain in the industry have shown they are committed to increasing the professionalism of the sector.”

As with all things, there is also possibly a downside from these falling adviser numbers.

Less supply will inevitable mean higher prices, particularly in light of rising demand as the baby boomer generation reaches retirement and requires advice on their complex financial needs.

This combined with rising regulatory costs, which must be met by fewer advisers, will undoubtedly drive up costs.

But a higher price for advice is a small price to pay if that advice is consistently better quality.

Once the retail financial services sector is established as a profession with higher standards, we might even start to see rising adviser numbers with new entrants attracted to this career option.

Photo credit: Flickr/*MarS