Regulation  

Getting to grips with the gap

I hope that you all had a good relaxing summer break. I certainly did, although it was not always quite so relaxing as my wife and I spent part of the time in France with some of the family including two energetic grandsons. However, the batteries are now recharged and I am looking forward to the coming weeks.

It is perhaps fitting that the next few months will be some of the busiest for the development of the profession. The government has effectively accepted that RDR has failed to achieve one of its original goals – to increase the numbers receiving advice and the take-up of our industry’s financial products. To remedy this, the FCA and the Treasury have been tasked to set up a Financial Advice Market Review (FAMR). The review will look at:

• the advice gap for those people with limited means;

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• the regulatory or other barriers firms may face in giving advice and how to overcome them;

• how to give firms the regulatory clarity and create the right environment for them to innovate and grow;

• the opportunities and challenges presented by new and emerging technologies to provide cost-effective, efficient and user-friendly advice services; and

• how to encourage a healthy demand side for financial advice, including addressing barriers that put consumers off seeking advice.

As I said, the above looks suspiciously like the original RDR objective. But this is a good sign; at least the powers that be have recognised that there is still a problem and are willing to tackle it, and in other aspects, RDR did achieve many of its goals. I would class ‘professionalism’ in this category, although personally I still believe that the qualification level for financial advisers and planners who give a full advice service should have been Level 6 rather than Level 4. I still expect that in time the market will move to this level.

The proposed consultation is also encouraging in that the scope is very wide. In addition to considering the current regulatory and legal framework governing the provision of financial advice and guidance, the review will also consider the interplay between the regulatory framework for advice and the role of Fos and the FSCS.

A review of this interplay is vital as we now have an untenable system that makes good firms pay for the past mistakes of rogue or incompetent advisers, and the cost of this – through professional indemnity insurance or contributions to the FSCS – is having to be met by current clients, thus driving up the cost of advice and driving many (to coin the current political ‘speak’) “hard-working families who want to do the right thing” away from advice or the various savings and protection products they need.

FAMR will start by reviewing:

• investments, savings, pensions, and retirement income products (including annuities)

• mortgages (including help-to-buy and equity release) and consumer credit

• general insurance

It will then narrow this down to a detailed look at where the advice gap is most acute.

Although on paper this seems like a simple exercise, I know from my many years of policy work that this is a big project, and the government has set the FCA and the Treasury with a very challenging timetable as they have to complete the consultation by the end of 2015 and have proposals in place by the 2016 Budget. Clearly, to achieve this timetable the FCA and the Treasury will need to put substantial resources into the project, and it is significant that Tracey McDermott, acting chief executive of the FCA and Charles Roxburgh, director general of financial services at the Treasury, are co-chairs.