Against the backdrop of the Financial Services Compensation Scheme forecasting that its 2021/22 levy will be £1.04bn, a staggering 48 per cent increase on last year, Pimfa has released its paper on the Future of Advice.
This follows its strategy paper specifically on the topic of FSCS, and the urgent need to tackle this broken system.
While we have long campaigned for reform of the FSCS, the Future of Advice paper takes a wider look at the state of the advice sector as a whole, the challenges it faces and how these can be addressed.
We have set out what we want the future advice market to look like and explain the increased need for advice in today’s society, and the value of it in both financial and non-financial terms.
Social and demographic changes, including an ageing population, the introduction of pension freedoms to increased digitalisation, have combined to make the decisions people face more complex and varied.
The Covid pandemic has also had a significant impact, increasing the need for advice but also highlighting that the high cost of advice to the consumer needs to be remedied.
We go on to describe the current challenges faced by the profession, taking into consideration the persistent advice gap, the impact of regulation and rising regulatory costs and the effect of scams and unsuitable high-risk investments on advisers and consumers.
In particular, we highlight the increased use of online platforms, such as social media and search engines, to reach potential victims and the limited power the Financial Conduct Authority has to take down financial promotions approved by online providers.
At the core of the paper lie recommendations for government, the regulator and industry but, as a start, all three have a role to play in making people aware of the benefits of financial and investment advice by positive promotion of the sector, raising awareness and, ultimately, trust.
To government, we call for a review of both the definition of advice and the regulatory perimeter, making the approval of financial promotions a regulated activity and to review and tighten the regulatory controls in relation to the exemption for high-net worth and sophisticated investors.
We also need to improve online protection by extending the Online Safety Bill to cover scams and other financial harm and ensure effective implementation of the financial capability strategy.
We ask the regulator to provide a regulatory framework for guidance and simplified advice services, to review the Handbook to ensure a clearer, effective, proportionate and cost-efficient regulatory environment and to review and improve its supervisory regime, already the focus of our Future of Supervision paper published last year.
We also call on our industry to promote a greater understanding of the value of advice and provide opportunities that ensure more consumers are able to access advice.
While we accept this will take time it is crucial industry colleagues work together to innovate to develop new, lower cost services that provide effective professional financial and investment advice to a wider market that is supported by flexible regulation.