For this special festive feature, we evaluate the top 10 significant events of the IFA sector’s 2014. To nominate the year’s key moments, FA enlisted the help of three IFAs: Simon Thomas, head of regulatory policy at Tenet Group; Paul Howard, proprietor at Box Financial Planning; and freelance compliance expert Adam Samuel.
We asked some advisers to give their views on the topic areas, and to decide which of Santa’s naughty or nice lists each should sit. The naughty list is symbolised by coal, while the nice list is represented by a present. Here goes…
Pension Freedoms (nice)
In the latter parts of George Osborne’s 2014 Budget speech, the chancellor unveiled a host of policies which changed the face of pensions as we know it. Pension freedom was the headline policy, giving people unprecedented access to their own pension pots.
Adviser view
Robin Sainty, chartered financial planner at Nurture Financial Planning, said: “It is wonderful that people can use their pension pot as and when they like without the say of annuity providers. However, there is a worry that a minority will go out and blow their pension with nothing to fall back on.”
The Care Act (nice)
This piece of legislation promises to create a stir in the health sector. The main part of the act is the introduction of a social care cap to the amount an individual pays toward his healthcare, which has been set at £72,000.
Adviser view
Frances Kemp, IFA at Nurture Financial Planning, said: “The changes are very positive for those in receipt of care or likely to receive care in the future, post-state pension age.”
She added: “However, as the country ages, I am concerned as to how this ever-increasing burden on the state will be funded.”
FCA takes control of consumer credit (nice)
On April 1, the FCA took over regulation of consumer credit from the Office of Fair Trading. Firms must now comply with the rules set out in the consumer credit sourcebook.
Adviser view
Robin Sainty, chartered financial planner at Nurture Financial Planning, said: “It makes sense for the FCA to take over consumer credit. There are currently too many agencies responsible for regulation in different markets. Having a number of regulatory matters under FCA control could potentially result in a better regulatory system.”
Disclosure post-implementation RDR thematic reviews (nice)
The RDR introduced a host of new guides, all aimed to promote greater transparency and fairness in the investment industry, which has had a major impact on the IFA – not in the least on disclosure.
Adviser view
Robin Melley, chartered financial planner at Matrix Capital, said: “The thematic review highlighted accepted best practice. Issues such as transparency, demonstrating value, high standards of professional practice and high levels of technical competence are some of the things that will help us to become a trusted profession.”
FCA’s advice on ‘self-defeating transactions’ (nice)
The FCA reminded companies to pay close attention to adviser charges and the cost of related services to ascertain whether or not a personal recommendation would be a good move for a client when they work out the total amount to be charged.
Adviser view
Matthew Bird, investment and mortgage advisor, Seer Green, said: “It is sensible advice from the FCA. I think there is an issue in the industry. Some advisers are farming business out of clients and charging clients for ongoing services when they are not putting in the work.”
FCA’s guidance to tackle conflicts of interest (nice)
The regulator’s report, Supervising Retail Investment Advice: Inducements and Conflicts of Interest, is aimed to ensure that retail clients get advice on the best product for their needs rather than being recommended a product because the advisory firm has a relationship with the service provider.
Adviser view
Frances Kemp, IFA at Nurture Financial Planning, said: “These changes now prevent unscrupulous IFAs from hiding their charges behind commissions, as many have done for years. It is a matter of ethics and doing the right thing. In our experience, it hasn’t put clients off from investing as they now understand far better how advice is paid for and the effect on their investments.”
Enhanced transfer value pension transfers (naughty)
ETV enables savers to relinquish the benefits they receive in their pension scheme in return for a cash value, which is invested in another pension scheme. The FCA’s thematic review on ETV pension transfers, published in late July, identified poor advice in a third of cases. It offers advice on how to tackle a catalogue of failings in current practice highlighted in the report.
Adviser view
Jason Witcombe, director, Evolve Financial Planning, said: “ETV is a disaster waiting to happen. In the long run, the vast majority of the UK population will be better sticking with their final salary pension. Just because you can transfer funds into a personal pension, it does not mean it represents good value.”
The guidance guarantee (nice)
In July, George Osborne announced the guidance guarantee, which will be offered as a free, universal guidance service to all those about to retire. It was drawn up by the government as part of its wide-ranging pension reforms announced in the March Budget.
Adviser view
Floyd Fombo, chartered financial planner at Rathmore Financial, said: “The guidance guarantee allows people to recognise that they are sitting on a valuable asset and they should be doing something which will benefit them in their retirement years. It is also a negative because it contradicts the RDR – the idea that customers have to pay for advice. It is positive news overall but there are some caveats.”
The implementation of MMR (nice)
The implementation of MMR on 26 April 2014 was of huge significance to mortgage lenders nationwide. The assessment of affordability becoming the responsibility of the lender and the requirement for all sellers/advisers to hold a relevant mortgage qualification (level 3) are just some of the key changes which applied to firms in the mortgage intermediary sector.
Adviser view
Matthew Bird, investment and mortgage advisor, Seer Green, said: “It is a good news story for us – we were focused by our network compliance before MMR. There were lenders who would breeze through the application process without applying the due diligence process for a greater profit. MMR levels the playing field.”
Simplified, automated advice models following RDR (naughty)
The FCA issued a guidance paper for firms struggling to develop simplified, automated advice models following the RDR. The regulator claims that since the RDR, companies have been struggling to navigate options between simplified advice or limited advice services and sales without personal recommendations.
Adviser views
Floyd Fombo, chartered financial planner, Rathmore Financial Ltd, said: “Some IFAs fear the impact of putting a decision tree on their websites. If the client is happy to proceed with an investment which ultimately doesn’t have the preferred outcome, who is to blame? The customer or the adviser? That is the grey area.”
Dan Clayden, director, Clayden Associates Ltd, said: “This is an area that is developing. We have seen a few offerings where the line between advice and guidance is blurred so greater guidance on this matter from the FCA is welcomed.”
Myron Jobson is features writer of Financial Adviser
