The FCA today published its long awaited Financial Advice Market Review (FAMR) report, detailing the regulator’s conclusions on addressing the advice gap. Perhaps a more honest title for the report would be ‘How to get banks to re-enter the advice market’.
The regulator is anxious for the banking sector to provide advice services to the mass market. The FAMR report could be taken as an 85-page, small apology for the previous two years and the £1.5bn folly of the RDR. The FCA has brought about the dismantling of financial advice and now needs a way out of the confusion it has created, without admitting its gaffe.
The FAMR report is merely a regulatory banking wishlist. It includes clear frameworks to offer guidance from the FCA; short, simple suitability letters, with involvement from the financial ombudsman to produce more streamlined client-facing documentation; marketing to clients is renamed ‘nudging’, not selling, and we assume will be outside of the constraints of COBS 4; any guiding or nudging needs to be sandboxed (the banks do not wish to pay any levies); consumers are provided with an option to pay for advice via their pension scheme; the successful project innovate is to be extended to help develop automated models; and finally, a trainee financial adviser can work without qualifications for a staggering four years, while under supervision.
Arguably, not one of the 28 recommendations concerns any IFA or financial planning firm operating in the UK today. Instead, all of them reduce the cost of providing advice/guidance and are squarely aimed at the banking sector.
Since the implementation of the RDR on 31 December 2012, consumers have found the costs of advice too expensive, resulting in the government hastily implementing the money advice service (Mas) and pushing the Citizens Advice Bureau (CAB) to take up the slack by offering guidance. But recent figures suggest the uptake from consumers towards both has been poor, again leaving the FCA to ponder a suitable solution after spending over £100m on its guidance disaster.
Chancellor George Osborne created an unforeseen boom in the demand for financial advice and guidance when he announced a raft of changes in the 2014 Budget, allowing easy access to pension plans and offering an advice guarantee for consumers (although this was quickly and quietly changed to the guidance guarantee).
With the resulting boom in demand for financial advice, the FCA may have surmised market forces would prevail and the banking sector would meet demand. Regrettably, the majority of banks snubbed re-entering, possibly deterred by the costs of regulation, threat of complaints and an overzealous regulator, which quickly identified the risks of pension drawdown products being sold without advice.
The FCA knows it needs the banks to solve the advice gap; research shows conclusively over 65 per cent of consumers sought advice from their bank prior to the banning of commission in 2012, while only 15 per cent of the UK population used an independent financial adviser.
The FCA acting chief executive Tracey McDermott commenting on the publication of the report, said, “The package of reforms we have laid out will help increase both the accessibility and affordability of advice and guidance to ensure consumers get the help they need when they really need it.”