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Financial advisers face RDR time bomb

Research shows advisers overestimate the number of new clients post RDR reforms

Financial advisers massively overestimate their ability to generate enough clients post the Retail Distribution Review (RDR) and "substantially underestimate" the threat from direct to consumer (D2C) business, according to a new Cass study.

The study, conducted by Cass Consulting for BNY Mellon, found that the average adviser expects to garner around £1,500 from each of roughly 150 clients to sustain the £220,000 per annum gross revenue they need to function as a business.

With fees averaging approximately 1% of the assets under advisory this means that the average IFA client will need to have around £150,000 in investible assets on average.

However, Cass research shows that just 1.43 million people in the UK have investible assets greater than £100,000 and just over 0.85m have assets more than £150,000.

If advisers require about £150,000 per client on average each IFA can expect only 30 clients. If IFA's can survive with clients possessing at least £100,000 of investable assets, then it implies 48 clients on average for each of the 30,000 IFA's. 

Either way these figures are far lower than the 'required' numbers indicated by the Cass research. 

Co-author of the report, Cass Professor Steve Thomas, said: "This excessive optimism on future revenues suggests that many more advisers will have to leave the industry or accept far reduced incomes."

The report found adviser numbers have dropped from 40,000 at the end of 2011 to 31,000 at the start of 2013.

Advisers point to RDR's raising of minimum education levels as a major reason for the reduction in adviser numbers. "With pressure on revenues, together with increased costs, we expect to see adviser numbers resume their downward trend," said Professor Thomas.

"For the financial advisers willing to rise to these challenges, the key will be to provide a highly qualified and differentiated product proposition above and beyond the basic advice that has been sufficient in the past but is now outmoded."

Read the full report: Challenge and Opportunity - The impact of the RDR on the UK's market for financial advice.

The research was conducted by Cass academics via Cass Consulting. To learn how Cass Consulting can help your business, contact Dr Christina Makris at

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