Reviewing financial advice

While I can hear someone at the back softly moaning, ‘Not another one’, this is actually a good thing.

There is still a huge amount of work to be done, which should be obvious to everyone.

With so many people not getting the advice – or even guidance – they need to make the right financial decisions, we remain in a comparative crisis in the UK when it comes to good money management.

The Financial Conduct Authority has long been aware of that and its relatively ancient Retail Distribution Review and Financial Advice Market Review were signs that it was stumbling towards solutions.

Now it is reviewing those reviews, which were in 2013 and 2015 respectively – or at least I think that is what it is doing.

Last week, the FCA launched a Call for Input asking for feedback on its proposed approach to reviewing the RDR and the FAMR.

Confused? I must admit I was after reading that. What is its proposed approach?

The FCA explained that the review will consider whether the RDR and FAMR “have been successful in achieving their objectives”.

Additionally, it will “look at what consumers want from the market and how the market works to deliver this... [and] consider how new market trends and developments might affect the future development of advice and guidance services”.

Got that? I hope so, as the watchdog wants to know what you think of it and has asked for responses by June 3.

What do others think?

Financial Adviser’s sister publication FTAdviser ran the story under the headline: FCA concerned about ‘driving too many people to seek advice’.

This prompted mortgage adviser Jane King to take to Twitter to ask: “For goodness sake! How can it be harmful to take advice on your finances?”

That seems a common sense question. Even if some people are pushed “unnecessarily” into taking advice, I cannot see how that can do any harm at all.

It is a point the regulator concedes, admitting that it did not think all this unnecessary advice had caused any consumer harm.

The real question is whether that advice causes any good. I believe that any advice is good, even if it only serves to help people be a little more informed about their financial choices.

The bottom line for me is that it seems million of savers are simply unaware that they actually have financial choices or that saving – whether for the short term or for retirement – can give them choices and, in turn, improve their quality of life.

How many people are financially vulnerable because of their lack of advice?

Andy Thompson, chief executive of Intrinsic, reckons “42m people need financial guidance”.

Ignoring the ongoing turmoil of what constitutes advice and what is guidance, he makes a sound point.

He pointed out that “FAMR was tasked with finding avenues to provide affordable and accessible advice and guidance to everyone”.

Mr Thompson noted it has failed and “has not enabled the industry to offer meaningful financial guidance in support of a public service.”

He, along with many others, warn one of the unintended consequences of all the FCA reviews has been the reduction in the number of financial advisers around.

With less competition, that in turn increases the cost of advice, which makes it even less attractive to many people.

Simon Cowley, wealth management consultant in Walker Crips’ wealth management team, warned all the regulatory red tape may actually have contributed to the bad image the financial advice industry constantly faces.

He explained: “A major consideration is the ongoing issue with ‘phoenix’ firms, where failed advice firms reinvent themselves as claims management companies. Banning this would increase trust and reduce bad practice.”

One voice of reason I always turn to when it comes to industry issues such as these is Hargreaves Lansdown’s head of policy Tom McPhail.

He observes: “Most of the time, most people just want a bit of help and guidance.”

An obvious point, maybe, but worth saying again. After all, the whole impetus of the FCA’s actions is to improve consumer outcomes. Putting consumer needs at the heart of the financial advice is crucial.

Of the latest review, Mr McPhail said: “The availability and the certainty around the quality of guidance hasn’t been adequately addressed yet. Too often firms are still wary of crossing the boundary into inadvertently giving advice and as a result they stop short of giving the guidance their customers seek.”

That sounds about right to me. But is it?

On advice, Mr Thomson said: “Trusted, insightful financial advice is the best way for people to achieve financial security and prosperity.

“Greater political emphasis needs to be placed on the importance of expert financial help, whether that is guidance, debt support, help [with] budgeting or professional financial planning.” 

I agree.

Simon Read is a freelance journalist