Advisers must strike balance with regulatory wishes

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Advisers must strike balance with regulatory wishes
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What should investment advisers make of the Financial Advice Market Review, now we are a few weeks out from the announcement?

What strategy should advisers and their representatives deploy to secure reforms that make sense for advisers’ clients, prospective clients, and their own businesses?

This is a little tricky to answer. The one outcome that is probably dearest to advisers is a sensible solution to the Financial Services Compensation Scheme situation wherein, as every decent adviser knows, the polluter tends not to pay.

Second on the priority list are issues with the Financial Ombudsman Service (Fos), the longstop and the relationship of Fos rulings to the FCA’s policies.

There is something incredibly valuable about the client-focused DNA that is at the heart of many adviser firms

As I argued in my previous column, my preference would be to allow adviser firms to be viewed as the best place to develop simplified forms of advice. At the least, advisers should argue against the assumption that banks or pension providers should be left to do the job alone.

There is something incredibly valuable about the client-focused DNA that is at the heart of many adviser firms.

Yet advisers are probably not crying out to play a bigger role in resolving the advice gap. What they will want is significant changes to some fundamental regulatory structures.

The quid pro quo is surely that adviser firms need to give some thought as to just how far down the income scale they might be able to go, given a better, fairer regulatory framework.

My view is that a wish list that merely reads as a bid for deregulation is unlikely to work.

This suggests an argument in favour of the longstop needs to say a lack of certainty on the issue increases the cost of advice significantly, making capital less likely to be invested while increasing business costs through professional indemnity and more. This means advisers cannot reach as far down the income scale as they might wish.

Similarly, an argument against the current compensation scheme set-up needs to assert that it is not just the fact that polluters don’t pay (because they are no longer in business), but that it is legitimate firms and the clients of legitimate firms who do – thereby increasing the cost of advice.

It is also important to ensure complaints do not sound like special pleading. It may, for example, make some sense to attempt to calculate a regulatory cost per typical client.

Perhaps advisers and their representatives should actually target a big increase in the numbers of actively advising investment advisers, and build a case for institutional change from there.

In this way, advisers can demonstrate that existing regulated investment advice can be a significant part of the solution – providing they are helped with reasonable, measured changes to the regulatory set-up.

John Lappin writes on industry issues at www.themoneydebate.co.uk