IFAs warn Consumer Duty could hit profits

More than 4 in 10 financial advisers expect the FCA’s new Consumer Duty - which came into effect on Monday 31 July - to hit profits due to the cost of complying with the new rules. New research from wealth manager and Financial Planner Quilter found that 44% of financial advisers expected their profitability to decrease because of meeting the new rules. The new Consumer Duty requires advisers and providers to ensure fair treatment of consumers at all stage of the customer journey. Many advisers expect a direct impact on their profits. Almost a third (32%) of financial advisers expect their customer fees to increase as a result of the regulations. Quilter’s research, gathered by consumer finance consultancy Boring Money, found that a quarter (24%) of financial advisers expected their turnover to decrease. Two thirds (63%) expect turnover to remain the same with just 8% expecting turnover to increase. Quilter said that the results may indicate that most advisers “do not see a business opportunity in the Consumer Duty.” Adviser firms said that the cost of complying with the Consumer Duty was on average £18,161, with a median of £7,500. For those in a network, this figure was £15,076, while those who are directly authorised expect costs of £19,934. Sole traders expect to see a cost of £4,925 to comply, compared to £93,325 for those with 21 advisers or more. For a mid-sized firm with between six and ten advisers, costs were expected to reach £20,208. Only 5% of advisers believe profitability will increase with 46% saying they expected profits to stay the same. Two directly authorised financial advisers said that their costs to comply with Consumer Duty would exceed £500,000, a figure Quilter called “remarkable.” Quilter said the Consumer Duty seems to have spurred many financial advice firms to review their business models. 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. “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.

IFAs warn Consumer Duty could hit profits

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