Before the introduction of the Retail Distribution Review, the industry was warning that a consequence of the new regulatory regime would be that some consumers would no longer be able to access advice as they would not be able to afford it.
Did the FCA listen or take concerns on board? No.
At a roundtable this week, FCA head Martin Wheatley revealed there are consumers who are not getting advice that may have done prior to the introduction of the RDR. He also said this issue remains the biggest challenge for the regulator as it is struggling to quantify the perceived advice gap.
We have been writing about the advice gap for at least three years, although the term “advice gap” did not come into common parlance until late 2012. We have an advice gap and a savings gap in the UK which feed off of each other.
Earlier this year, FTAdviser revealed that IFA James Williams has launched an online proposition aimed at lower value clients. The following week, FTAdviser also revealed that IFA group Penguin Wealth has launched the first of four websites, the first of which is aimed at pensions.
This highlights that advisers are attempting to tackle this issue. What is the regulator doing?
Get rid of the term restricted
Speaking at the same roundtable, Nick Poyntz-Wright, FCA director for long-term savings and investments, said there was still a lack of clarity over the new definitions and that the FCA would be ”redoubling” its efforts in the coming year.
Martin Wheatley, the chief executive of the conduct watchdog, also admitted there was more work to be done on clarifying the definitions but that it would not be seeking to change the rules.
Well knock me down with a feather. Ever since the term ‘restricted’ came in, it has been criticised because it implies an adviser is restricted, that is to say not as good as independent. Never mind the fact that it just sounds rubbish.
Why couldn’t advisers just have the simple terms they had before. Did this really need to change?
Restricted has a negative connotation yet, somewhat bizarrely, more and more advisers are moving from having an independent proposition to having a restricted one because they are afraid the independence bar is too high.
One year on from RDR implementation, you would have thought the regulator would have worked that out before this week. More critical is the question, again, of what they will no do, especially as it has said a U-turn is not on the cards.
Top of the iceberg for criticism of new pricing structures
Hargreaves announced this week its new tiered pricing structure and preferential rates and received a barrage of criticism for it.
The execution-only platform operator revealed a new pricing plan by which clients would pay different amounts depending on the size of their portfolio.
At the same time, HL boasted that as the result of negotiations with fund groups, the 90 funds on the Wealth 150 list would be available at an average annual management charge of 0.65 per cent, compared to an average of 0.76 per cent if an investor bought the standard clean fee share class.
However, some commentators criticised HL for not being transparent enough with their new prices. Surely, this criticism is just the top of the iceberg. Over the next few months, all platforms will be unveiling their new pricing structures and, I would imagine, they will all be under fire for doing so.
Good value? Not for at least a year
This morning FTAdviser’s sister newspaper, the Financial Times, revealed the DWP may be set to delay any pension charge cap until at least next year.
The government proposed three possibilities: a charge cap of 1 per cent of funds under management; a lower charge cap of 0.75 per cent of FUM, reflecting the charging levels for many schemes; and a two-tier ‘comply or explain’ cap, meaning there would be a standard cap of 0.75 per cent of FUM with potential for higher charges if reasons are explained to the regulator.
This is not really surprising considering the amount of views on what is right. If it’s capped at 5 per cent, the National Employers Savings Trust is expensive.
Pensions expert Ros Altman previously said even a 1 per cent cap on pensions charges, double that proposed by Which?, will make Nest seem expensive.
The aim of the consultation is to determine good value for consumers. I am guessing the DWP is struggling to determine this, hence at least a one year extension, and in the meantime consumers will not get good value for money because schemes can charge whatever they want.
Once the cap is announced, the DWP may say this only applies to new business in which cases, those already in schemes will once again lose out. Good value? Only for pension schemes.
Cracking down on back-door deals
Yesterday (16 January), the FCA published its final guidance on inducements. While there wasn’t much difference in this and the initial consultation, one thing is clear, disclosure is everything.
The regulator will scrutinise panel arrangements between parties to ensure there are not any potential breaches of its Principle 8 relating to conflicts of interest.
The paper warns that exclusive distribution agreements between advisers and providers which lead to a single provider distribution arrangement could breach Conduct of Business Sourcebook rules.
Will this put an end to exclusive deals? Unlikely, but expect more scrutiny.
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