FCA finally enshrining advice, but it must get balance right

Ashley Wassall

Those of us working in and around the financial advice sector often rightly castigated the regulator for not supporting the important role it can and should play for many investors.

We’re through the looking glass on financial risk and living in the aftermath of one of the worst downturns in history. The population continues to descend ever deeper into a savings torpor that is catalysing a spiralling pension liability deficit.

Whether buying a house, making investments with accrued savings or embarking on a plan to ensure an auspicious retirement, speaking to a professional financial adviser should be enshrined as a way to ensure financial security and generate ‘bang for your buck’.

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I’m sure at this point I’ll lose the goodwill built up in these opening paragraphs among a few readers, but I believe the Retail Distribution Review had the potential to help some way towards this laudable goal.

Through increased professionalism we should aim to put financial advice on a par with accountancy or legal advice, and transparent remuneration, if implemented correctly, should have helped to mitigate criticisms of the sector and foster trust between it and prospective clients.

And, to be fair, surveys showing more people are likely to use advice for the first time and widespread reports of improved profitability for many firms across the sector suggest this is, at least to some extent, working.

More broadly however, it is hard to escape the feeling that our sector has been continually undermined by regulatory indifference in the past.

The Financial Services Authority, for example, made little to no effort to facilitate flexible advice mechanisms that might have improved access to advice for mainstream clients and reduce barriers to entry to the sector.

It generally took an officious and detached stance that all but destroyed the relationship between it and those it regulates, routinely failed to promote the importance of advice and, perhaps worst of all, consistently increased its cost burden with little regard for the effect on firms.

There has been a sense that things are changing under the Financial Conduct Authority, though.

Mr Wheatley just this week discussed the importance of shifting regulatory focus away from arcane compliance, and he has also previously sounded positive tones about web-based simply advice models to help offset the ‘advice gap’.

Yesterday (25 October) the regulator delivered its coup de grace of this new, adviser-friendly approach when it published a consultation paper on the emerging area of ‘crowdfunding’ that proposed firms must only market to non-sophisticated retail investors via professional intermediaries.

The reasoning is that crowdfunding - raising money for start-up businesses by collecting small amounts of money from everyday investors - is by its nature higher risk to due the nature of the underlying investee businesses, which are young, fragile and prone to failure.