Your IndustryOct 23 2015

Forget FAMR - IFAs deliver solutions to advice gap

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Forget FAMR - IFAs deliver solutions to advice gap

Providers and advisers have criticised and offered solutions in response to the Financial Advice Market Review

Once the terms of reference were published, Adviser Home started running workshops to get the views of the industry, eventually publishing a report drawing on 165 responses from various sizes of advisory firms and providers.

Adviser Home director Brendan Llewellyn told FTAdviser that representative from both the Financial Conduct Authority and HM Treasury attended some of the events.

“The general consensus is that this is a really big deal. Advisers want change on things like costs and levies, even if there are concerns that this looks like RDR II so soon after the first version.

“The jury’s still out on what to do about the adviser gap, but many say they would expand their offering if there was more certainty about the course of regulation and liabilities in the future.”

When asked about their initial reactions to the review, most advisers said it was ironic - as regulation caused the shrinking of the number of advisers - while providers were more positive, stating that they can get behind the changes so long as there’s a workable solution to simplified advice.

Both advisers and providers agreed the advice gap was caused in the first place by the costs of running an advisory practice forcing advisers to focus on high net worth clients.

In terms of solutions, providers demanded clear rules on remote and digital advice, with suggestions around possible growth in non-advised services.

Meanwhile, advisers said remuneration from providers could allow advisers to fund advice for clients who can only support regular smaller levels of investment.

Both agreed a national advertising campaign would encourage people to seek advice, while changing suitability requirements and looking at tackling confusion around the definitions of independent and restricted were also crucial.

In the weeks since the advice gap review was first announced, government and regulators have indicated possible movement on some long-held industry gripes.

Earlier this week, FCA chairman John Griffith-Jones said fairness for financial advisers will be a key part of the upcoming review of the Financial Services Compensation Scheme levy, while the Treasury said it was considering introducing a voucher system – similar to legal aid – as a way to help consumers pay for financial guidance.

Meanwhile, other stakeholders, like think tank the Financial Inclusion Centre, have proposed a government-backed national financial advice network to close the advice gap, arguing the main obstacles to advice are economic rather than regulatory.

Among the anonymised proposals put forward by the advisers that attended the sessions was the idea of giving firms a star rating, with higher ratings meaning trust to give lower earners advice with a more relaxed compliance procedure.

“Whenever an advice firms earnings per client are below an estimated £300, that it falls outside all the rules and the FSCS and Fos don’t apply either, so it can work similar to a visit to the GP, a chat to clarify facts and provide assistance,” suggested another IFA.

Other advice gap solutions included advisory firms to be able to challenge ombudsman decisions through the courts like clients can, regulating all products and fund compensation from a product levy, and the FSCS protection for regulated advice and products only.

Providers agreed that to deal with lower value clients, advisers should also be able to offer a less regulated proposition, “because the risk levels are obviously lower”, according to transcripts from the workshops.

“There is no sensible way that full-fat advice can ever be affordable as a ‘normal’ route to market to reach mass-market consumers,” stated another provider. “We have to build a market that can deliver good outcomes without full, individual advice (as auto-enrolment seeks to do), while helping consumers to recognise that occasionally, they may find themselves in complicated and difficult situations where they do need advice and it is worth paying for.”

Mr Llewellyn even pitched in, stating that while full advice required level four qualification, maybe those at level two could give advice on a restricted range of needs to cater for the expanding mass market following the pension freedoms.