Not that advisers will have much sympathy. The FCA was also in touch with intermediaries last week, requesting further information about their businesses’ resilience to Covid-19.
The outcry over recent bills is clearly having an impactThere is nothing inherently wrong with the regulator seeking regular updates on this front, even if most responses ultimately amount to ‘nothing has changed since the last time we told you’. But the context is important – and the context is advisers are feeling rather harried by the watchdog at the moment. The biggest bugbear, of course, is the sharp rise in regulatory fees currently being witnessed across the advice sector.
From a retail investment perspective, many of the most important issues intersect with one another. Scams, frauds, phoenixing: all are causing consumers to lose out and ultimately contributing to greater costs for the financial advice industry. Some, to be sure, will be able to bear these increases. But however successful a business may be, seeing bills rise exponentially will always stick in the craw.
Financial Adviser’s Keep Fees Fair campaign was conceived against this backdrop. But unless action is taken, things will get worse before they get better. The surge in fraudulent activity seen since the start of the Covid-19 pandemic spells bad news for consumers: the resultant claims arriving at the Financial Services Compensation Scheme will cause problems for advisers, too.
There are signs the FCA is having a rethink of how it approaches these issues. While it insists it will not revisit FSCS funding in the near term, the Call for Input discussion paper released last week saw it reopen discussions on issues such as making the polluter financially liable.
As the paper says: “the minority of bad advisers, and the advice they give, is damaging the reputation of the whole market. Tightening up on this is likely to increase costs for firms, the majority of which aren’t giving bad advice. But they are already paying for the minority through FSCS costs, and behind every FSCS payout is a consumer who has suffered harm. This needs to change.”
The outcry over recent bills is clearly having an impact. But finding solutions is tougher: a ‘polluter pays’ model sounds right in theory, but is much harder to implement in practice. Now is the time for those with smart ideas to speak up to the regulator.
Other changes may also be in the works. One problem with high-risk products is the extent to which the FCA sees itself as an interventionist regulator. Last September, director of advice and life insurance Debbie Gupta said the watchdog could not simply ban such products, chiefly because they might be appropriate for niche investors in certain circumstances. The Call for Input’s prospective reassessment of what constitutes a ‘sophisticated’ or high-net-worth investor, might mean those niches are not long for this world after all.
But when Nikhil Rathi takes over as new FCA chief executive next week, he will be confronted by a sizeable to-do list that extends far beyond financial advice, and would do so even in years when a pandemic and Brexit do not feature.
This, for advisers, is part of the problem. Not for nothing did Pimfa suggest earlier this month that supervision tends to focus on larger firms.
The sense of being pulled in many different directions is keenly felt by the regulator: it is no coincidence its latest business plan, published in April, began by referencing “finite resources” and “nearly 60,000 firms to regulate”.
In the same document, however, the FCA also noted that many of the toughest issues it faces take place “at, or over the other side of”, its regulatory perimeter. There is a case that the watchdog is both spread too thin and not allowed to oversee all that it should. This one is on the government: the Treasury Committee said last year the FCA should be able to take more explicit action on products that sit outside its remit – the alternative being the current system of retrospective, costly action. That call was implicitly backed by the watchdog. But the Treasury itself said in October it did not see the need for change.
So pandemic or no, it is perhaps no surprise that the FCA’s annual perimeter report, the first edition of which was published in June 2019, has yet to receive its promised follow-up so far this year.
These issues, then, require political will as much as anything else. Which brings us back to advisers’ own burdens, and emphasises why communication with elected representatives is so valuable. The problems facing the pensions and retail investment world are interwoven, and tough to straighten out. Potential solutions are similarly knotty, and cannot be introduced by the FCA alone. The government, like the regulator, may be preoccupied with Covid-19 and Brexit. But raising awareness on all fronts will be crucial to advisers’ chances of success.
Dan Jones is editor-in-chief of FTAdviser
