| LONDON, April 17
LONDON, April 17 Tough regulation and rising
costs are driving thousands of UK small financial advisers out
of an industry which will end up dominated by a handful of
players, like banking and food retailing, investment manager
Hargreaves Lansdown said.
Reforms introduced this year on retail financial product
sales have coincided with an overhaul of the entire regulatory
infrastructure, with asset managers now answering to a
newly-created watchdog, the Financial Conduct Authority.
But complying with the changes is proving expensive and
higher running costs have already driven out of business many of
small financial advisers that were once central to investment
selling in the UK.
"Because those costs are constantly rising ... more and more
you have to be a big player in order to be successful," said Ian
Gorham, Chief Executive of FTSE 100-listed Hargreaves Lansdown,
founded in 1981 in the spare bedroom of a house in Bristol,
western England, by Peter Hargreaves and Stephen Lansdown.
"I don't think Peter and Steve could set up the business
from a back room today."
The impact of regulators sparking consolidation in the
financial advice market by raising the bar for entry sits at
odds with their efforts to encourage a more competitive banking
industry by easing access for new players.
One regulatory reform that has shaken financial product
selling to the core is the Retail Distribution Review (RDR),
which came into force at the start of 2013.
This replaced commissions-based sales to consumers with a
system of fees, emulating the model employed by professions,
such as the law.
The reforms, alongside higher barriers to entry for
financial advisers such as more rigorous qualifications, aim to
ensure investors are offered what matches their needs rather
than what pays the salesman the best commission.
As well as the disappearance of small, neighbourhood
financial advisers, some larger firms have either exited the UK
retail advice market or refocused on richer clients with more to
invest and consequently promising greater profits.
French insurer AXA is planning to cut 450
financial advisory jobs at its UK banking joint venture, saying
new commission rules make it tough to turn a profit providing
British retail banks, including Barclays and Lloyds
, have wound down their provision of financial advice to
This leaves Britain's investment advice market increasingly
dominated by large national networks like Hargreaves Lansdown
and rival St James's Place, both of which have seen
assets rise partly at the expense of smaller competitors.
Gorham was speaking to Reuters after the company published a
trading statement showing the amount of assets administered for
its clients rose 4.7 billion pounds to 35.1 billion pounds
during the three months to the end of March.
"We call ourselves an investment supermarket. If you look at
supermarkets. It's competitive and there are only four or five
big players," Gorham said.
"It's dominated by the big players who have the best
negotiating power, they've got economies of scale and our market
is very much like that."