The FCA has written to the top 20 “national” firms with a questionnaire that probes what percentage of their clients are actually getting an annual review (and how many of them are paying for a service they aren’t using). Membership services – like gyms and clubs rely on a few people using the service heavily and many people renewing without setting foot on the premises. Any subscription model works like that.

Whether the payment of services is through a direct debit (as most memberships are) or through a charge on invested assets (as differentiates most  wealth managers) there is precious little friction in the payment process, things renew automatically unless there is an opt-out and we all now hard it is to opt-out.

But the consumer duty is about giving value for money and not charging for services that aren’t being delivered and here is the snag. For the percentage of clients who “set and go” and pay for an annual service they don’t need, there is a potential breach of the consumer duty, unless the IFA can argue that unused advice is stored up for the future by way of credits. In practice , I suspect that most agreements are “use it or lose it”, in which case you can’t very well argue in future years of need, that you have a store of unused advice to call on.

So the systems which record that consumers knew the implications of paying a fee for services – regardless of whether they are used or not, is going to be tested.

This really matters as the enterprise value of an IFA’s business to a future buyer is based not just on current revenues but the likelihood of those revenues continuing. If there is a threat to future revenues through regulatory intervention, the value of an IFA’s business is diminished. This is a matter for considerable discussion (here is Mike Jordan , managing director of West Midlands-based Jordan Financial Management in Citywire

‘The impact of every [regulatory] change seems to always cause a reduction in the availability of financial advice,’ he said.

‘In the late 90s, there were more than 200,000 financial advisers; now there are only 30,000. People might say pushing down costs is a great thing, but you’ve got to have a level of remuneration that keeps people doing the work.’

From the consultancy world, Mark Polson, chief executive at The Lang Cat, feels the FCA’s review could have huge implications, comparing it with Australia’s Royal Commission into misconduct in the banking, superannuation and financial services industry, which uncovered widespread wrongdoing.

‘Good advisers in well-run advice firms have nothing to fear directly here, other than additional costs associated with increased evidence gathering,’ he said.

‘However, there are shades of Australia’s Royal Commission in this, where they uncovered misconduct relating to financial institutions charging customers for services that were not provided and, in some cases, that were never intended to be provided.

‘The fallout from that in Australia has been seismic and industry-redefining, with many large established institutions going to the wall and banks withdrawing from advice services. If the FCA is intent on going down a similar path, the ramifications could be equally significant, with a real risk of the good firms being tarred with the brush rightly applied to the bad actors.’

Jordan tells Citywire

‘In the late 90s, there were more than 200,000 financial advisers; now there are only 30,000. People might say pushing down costs is a great thing, but you’ve got to have a level of remuneration that keeps people doing the work.’

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Liabilities rise as revenues are under threat.

At this week’s Pension PlayPen coffee morning   , First Actuarial’s Sarah Abraham laid out how the proposals for the FCA’s redress initiative are requiring IFAs to reserve against future claims over mis-selling of DB transfer advice.

The audit of a back-book is not subject to a 6 year limitation but can stretch over the lifetime of a business or to 1988 when CETVs were introduced as a means of transferring pensions to invested pots.

In its consultation paper , the regulator said it it expected between 750 and 1,550 firms to set aside extra capital for compensation (about a third of the advice market), and 40-150 firms to face asset retention orders.

This is creating poison pills in advisory businesses that makes some unsellable. The IFA who has worked 30 years to build up a practice to see his life-work devalued to nothing for the liabilities that work has created.

What is this doing to the availability of advice?

The continuing winnowing of the advisory wheat-stack will lead to a further reduction of IFAs and one question is whether this process will lead to more consumer detriment than it will solve.

If we are considering the advice gap, then the main hope is that a cleaner industry will encourage new blood, the worry is that the incentive to join a lower-paying industry will be reduced.

This is a real test for the advisory model and the private equity firms who own a big slice of that model should be considering the implications of revenues falling and liabilities rising with considerable concern.