Nearly half (44%) of financial advisers expect their profitability to decrease due to the Financial Conduct Authority’s new Consumer Duty rules, research by Quilter has found.
Just 5% believe their profitability will increase and 46% said that they expect it to stay the same.
Quilter’s research, gathered by Boring Money, also found that 24% of advisers expect their turnover to decrease, with two-thirds (63%) saying it will stay the same. Just 8% expect turnover to increase.
Quilter believes this is an indication that advisers do not see a business opportunity in the Consumer Duty, which comes into force today (31 July).
When asked how much, if anything, they expect complying with the Consumer Duty will cost their business, the average amount given 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.
Behind the Headlines: What to make of the Consumer Duty
Expected costs vary greatly depending on the size of the firm too.
Sole traders expect to see a cost of just £4,925 to comply, compared to a mammoth £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.
| Size of advice firm | One adviser | two to five advisers | six 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 |
Remarkably, two directly authorised financial advisers stated that their costs to comply with the Consumer Duty would exceed £500,000.
The Consumer Duty has caused many financial advice firms to review their business models and this will likely have an impact on the resource available.
While a good majority see turnover remaining static, a large minority see profits falling. This highlights the potential cost implications of the changes required.
Almost a third (32%) of financial advisers expect their customer fees to increase as a result of the regulations.
Consumer Duty – 10 points you need to know
Commenting on the research, Quilter Financial Planning advice recruitment director John Kerr 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.
“Clearly there has been a cost implication for financial advisers and they have fears about what this will do to turnover and profitability.”
Kerr suggested that advisers should seek support externally to help with these costs as providers and suppliers have lots of resources to help them through this period of change.
In fact looking to outsource elements of the value chain can ease the heavy lifting advisers need to do.
He added: “The Consumer Duty needn’t be a drag on your business. 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.”
The Consumer Duty comes into force today (31 July). Financial advisers have had mixed feelings about what the new regulations will mean.
A majority of independent financial advisers think the FCA has been unclear about the Consumer Duty.
Polling firm Opinium finds that advisers are uncertain about the FCA’s role in developing and implementing the Consumer Duty rules.
Almost half (48%) in the Opinium Survey said they are now more concerned about the risk of complaints, investigation, or penalties on their practice – with 10% feeling much more concerned.
