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Will FCA proposals to improve access to advice be successful?

Will FCA proposals to improve access to advice be successful?
Photo by Andrea Piacquadio from Pexels

Advisers have said the Financial Conduct Authority's plans to create a new style of advice that is “not intended to carry [the] obligations of an advised sale”, to help smaller investors who are not currently well served, need refining. 

The document outlining the new advice plan, called the "Potential guided sales model in development – draft for discussion", was sent to industry bodies such as Pimfa back in September 2021 for review. The aim is to reduce the barriers to advice suffered by smaller investors.

Simon Harrington, head of public affairs at Pimfa, says: “The FCA estimates that nearly 9mn people are holding £10,000 or more of investable assets in cash. While some of these people will have reasons for doing so, we take the view that many of them simply do so because they are either unable to access an investment product or are unwilling to do so.

“The reasons behind this are behavioural but they are also clearly a function of a lack of knowledge. We agree that reform of the route to market for investment products is long overdue and broadly welcome the FCA’s focus on simplifying the journey rather than the product.”

Proposals

While it is not easy to take a firm view of the proposals until the full details are published, Pimfa welcomes them in principle. This, says Harrington, is ultimately a simplification of a sales process rather than a simplification of the advice process.

He adds: “We harbour some scepticism that it will adequately overcome the behavioural barriers some savers will have towards investment products, which ultimately need to be addressed through the provision of support. Money is ultimately emotional and simplifying the sales process won’t really address that.”

Did RDR create the problem?

Derek Bradley, chief executive of Panacea Adviser, feels this advice gap was created directly as a result of the Retail Distribution Review, and that many advisers had warned this would be the outcome before the RDR had finished.

Bradley adds: “The impact of RDR on the affordability of advice for the general consumer was shouted from the rooftops by the industry well before it started. At Panacea, we even had 2 MPs attend a Panacea conference on the concerns about RDR – Harriett Baldwin and Mark Garnier.

“We sent in a consultation response, got a mention in the report but nothing else. Nobody listened, nothing was done by the government, who had also been bombarded to stop the then FSA from banning commissions. This single act of ‘told you so’ stupidity made advice unaffordable overnight.

“Nothing can or could replace access to face-to-face financial advice. That is why the often under pressure world of the IFA has lasted so long despite the best efforts of regulation to destroy them.”

Harrington agrees that RDR has made it more difficult for advisers to provide cost-effective advice, but says there is more to it than that. For example, the other major factor is that from a macro perspective, the only age demographic that has received a real-term pay rise since the financial crisis is UK pensioners.