OpinionJul 22 2016

FCA must realise FAMR won’t right RDR wrongs

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The Retail Distribution Review has seen adviser businesses that operate today become more profitable.

Ten to 15 years ago, as a Financial Adviser reporter, I regularly had to report on intermediary businesses and networks going bust.

New to this industry back then, it struck me as bizarre companies telling you how to manage your money clearly couldn’t handle their own financial incomings and outgoings.

Post Retail Distribution Review, there seems to be far fewer instances of advice firms going bankrupt.

The Retail Distribution Review introduced requirements at the end of 2012 for customer agreed remuneration.

A shift towards fees and away from commission, plus the introduction of qualification requirements, saw advice firm bosses who would have previously not given much thought to their profitability have to think more about the way they ran their businesses.

Rather than solely focus on boosting their clients’ cash, the Retail Distribution Review forced advisers to think seriously about the cost of advice and how much they should charge for their services.

Mr Bailey is wrong to think the Financial Advice Market Review will reverse the wrongs of the Retail Distribution Review.

As a result, the cost of advice today more truly reflects the hard work, research, continued learning and development you must undertake to ensure your clients get value for their money.

But – undeniably – by pushing up the cost of advice and making the price tag finally reflect the value of your service, the Retail Distribution Review also pushed advice away from the mass market.

The cost of advice today sounds less like good value for money if you only want limited or one-off advice today than it did a decade ago. Advice is less affordable than it once was.

It was good to hear the Financial Conduct Authority’s new chief executive Andrew Bailey join his interim predecessor Tracey McDermott in acknowledging that the Retail Distribution Review widened the advice gap.

At the FCA’s annual public meeting this week, he said while the RDR achieved the objective of removing opaque charges and raising professional standards of intermediaries, it caused advisers to pull away or make their service too expensive for one-off or limited advice.

Last year, the regulator reported that in 2007, two-thirds of retail investment products were sold with professional advice. This conjunction of professional advice and product sales is also a feature in other countries, it added.

However, in recent years there was a decline in the number of financial advisers offering professional advice - from around 26,000 in 2011 to 24,000 in 2014.

The Financial Advice Market Review was launched in a bid to tackle the advice gap.

At the annual public meeting, Mr Bailey said “the vision which FAMR offers is to ensure that all consumers have access to appropriate, affordable advice and guidance, at all stages of their lives.

“I know that the recommendations (of FAMR) and their implications are of huge significance for those who operate in the financial advice market. I will work with stakeholders as we progress this agenda.”

Mr Bailey would be wrong to think the Financial Advice Market Review will reverse the wrongs of the Retail Distribution Review.

The Financial Advice Market Review is increasingly about guidance and “robo-advice.”

The FAMR will not deliver advice to the masses.

Guidance and robo-advice deliver a product to the masses. A product is not necessarily always the best solution. Any adviser worth his salt knows that.

Mr Bailey needs to realise what the masses want – and deserve – is advice. It is vital more work is done by the regulator to look at how to reduce the cost of advice and make it more affordable for those with less in their savings pots.

The review of the Financial Services Compensation Scheme levy should only be the start.

What remains vital is a re-think of the long stop.

In the FAMR final report, the regulator just carried on with it’s repeated refusal to introduce a long-stop.

The FAMR just delivered an outright rejection of the idea advisers should ever be allowed to retire in peace without the fear of some retrospective claim arriving.

If you really want to plug the advice gap, Mr Bailey should reconsider a long-stop as this would immediately reduce professional indemnity insurance costs and the price tag that comes with offering advice today.

emma.hughes@ft.com