The Financial Conduct Authority's interim report raises an interesting question - who should be responsible for identifying if platform customers are still receiving ongoing advice?
The report suggests new rules would require providers to annually check an advised customer account, and should they fail to see any ‘activity’ – which is as yet undefined by the FCA – the provider cease any ongoing adviser charge schedule and treat the customer as an orphan going forward.
Should my bank be responsible for checking that I’m getting value from my Netflix, Amazon Prime, Virgin Media or Spotify subscriptions?
If I fail to use a service for an extended period should it be their responsibility to cancel the direct debit paying for it? In this instance I might not care, but my kids would be absolutely livid.
I guess this drives to the point. In assessing any evidence it is essential to add context.
My subscriptions are used by my family with my full knowledge – and, in my view, a price worth paying to keep the peace.
Similarly, a fee could be coming from a seemingly inactive platform account for good reason.
There is a real risk of reverting to the product-centric view of the world that should have been left behind together with commissions. I do recognise the challenge facing the FCA. Regulating the advised market with over 14,000 registered individuals who, in turn, look after millions of clients is a significant challenge.
Trying to cultivate positive behaviours and customer outcomes through the 30-odd platform providers has to make sense. In fact, I would suggest that much of the positive change we have seen in the last decade has been implemented in this way; advisers adapting to regulatory change enabled by advancing platform technology.
The move to fees, central investment processes and transparency are all good examples.
However, to maintain this positive collaboration it is important that platforms are not asked to police advisers. Helping advisers to demonstrate their compliance should be the limit of the platform’s role.
In considering whether the suggested monitoring (which has been deployed in Australia) will help customers it is important to consider any unanticipated consequences.
If an investment transaction is the measure of activity, will this lead to more advisers attempting to time the market in an effort to add value? Also, will a rogue adviser just ensure they switch at least one fund per client in a measured period to ‘tick the box’, regardless of whether they’re providing a good level of ongoing advice or that the switch was in the client’s best interests?
In general, platforms host long-term saving and investment solutions. Therefore it might be wholly reasonable for a customer’s platform record to remain unchanged for a year or more despite receiving regular ongoing advice services.
Also what role does the customer play here? The FCA needs to acknowledge the individual’s choice and personal responsibility for any ongoing contractual payment they enter into.
However, my greatest concern is the implication that the value of advice is in activity or intermediation. There is a real risk of reverting to the product-centric view of the world that should have been left behind together with commissions.
No visible change does not mean a portfolio has not been monitored. No visible change does not mean alternate options have not been considered. No visible change does not mean the customer has not been reassured. No visible change does not mean the customer has not been advised.
If we focus purely on the transaction, then we risk holding back progress.
If product intermediation or trading activity is the sole source of value then why have US robo-firms reintroduced human advisers into the process?
Even though an adviser might not regularly meet a customer or log activity on the platform, the customer may still benefit from the adviser’s service.In fact, behavioural science suggests that advising a customer to remain calm and sit tight through periods of market volatility is valuable advice. But valueless in terms of activity.
I really struggle to believe that there are a large number of platform customers paying ongoing adviser fees and not receiving any service from their adviser. If we look at the customer engagement regarding adviser fees over the past few years, it is difficult to envisage there could be any systemic issue here.
RDR ensured advised customers are made fully aware of the charges they pay for advice by introducing a new contract between the customer and the adviser through the adviser charge agreement.
The ‘sunset clause’ took effect on April 6 2016, effectively killing off any remaining commissions from mutual funds (except those governed by tax-wrapper rules such as pensions and bonds).
Mifid fee disclosures raised the profile of fees again in 2018.
The advice market and business models are constantly evolving. We have to prepare for the market of the future and be careful not to hold back change.
We’re already witnessing the emergence of hybrid models and it is vital that these new approaches are nurtured if we are to ever close the advice gap.
Even though an adviser might not regularly meet a customer or log activity on the platform, the customer may still benefit from the adviser’s service – for example, by using their online web services; receiving regular newsletters; and most probably by being invested in the adviser’s centralised investment proposition, and which the firm will review on a regular basis.
Although well intended, I think asking platform providers to interfere in the contractual agreements between customers and their adviser would create numerous challenges. In fact, new measures and practices may put us on a path riddled with unintended consequences that may divert the evolutionary course of the UK’s professional advice-based market.
Unintended consequences we should be wary of, for we know which road is paved with them.
David Tiller is head of adviser and wealth manager propositions at Standard Life
