Hargreaves Lansdown boss sees UK financial advice oligopoly

By Chris Vellacott

LONDON, April 17 (Reuters) - Tough regulation and risingcosts are driving thousands of UK small financial advisers outof an industry which will end up dominated by a handful ofplayers, like banking and food retailing, investment managerHargreaves Lansdown said.

Reforms introduced this year on retail financial productsales have coincided with an overhaul of the entire regulatoryinfrastructure, with asset managers now answering to anewly-created watchdog, the Financial Conduct Authority.

But complying with the changes is proving expensive andhigher running costs have already driven out of business many ofsmall financial advisers that were once central to investmentselling in the UK.

"Because those costs are constantly rising ... more and moreyou have to be a big player in order to be successful," said IanGorham, 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 businessfrom a back room today."

The impact of regulators sparking consolidation in thefinancial advice market by raising the bar for entry sits atodds with their efforts to encourage a more competitive bankingindustry by easing access for new players.

One regulatory reform that has shaken financial productselling 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 asystem of fees, emulating the model employed by professions,such as the law.

The reforms, alongside higher barriers to entry forfinancial advisers such as more rigorous qualifications, aim toensure investors are offered what matches their needs ratherthan what pays the salesman the best commission.

As well as the disappearance of small, neighbourhoodfinancial advisers, some larger firms have either exited the UKretail advice market or refocused on richer clients with more toinvest and consequently promising greater profits.

French insurer AXA is planning to cut 450financial advisory jobs at its UK banking joint venture, sayingnew commission rules make it tough to turn a profit providingsuch advice.

British retail banks, including Barclays and Lloyds, have wound down their provision of financial advice tomass-market clients.

This leaves Britain's investment advice market increasinglydominated by large national networks like Hargreaves Lansdownand rival St James's Place, both of which have seenassets rise partly at the expense of smaller competitors.

Gorham was speaking to Reuters after the company published atrading statement showing the amount of assets administered forits clients rose 4.7 billion pounds to 35.1 billion poundsduring the three months to the end of March.

"We call ourselves an investment supermarket. If you look atsupermarkets. It's competitive and there are only four or fivebig players," Gorham said.

"It's dominated by the big players who have the bestnegotiating power, they've got economies of scale and our marketis very much like that."