Under the bonnet of the FCA business plan

However, on closer examination that is far too broad a statement and one which could seriously undermine the consumer trust and sentiment that we are all trying to build upon.

The core themes of these publications and many other existing FCA consultation papers in progress, are transparency, competition and indeed the question of value for money for consumers. 

So let’s take a closer look.

The FCA has quoted an operational objective: “to promote effective competition in the interest of consumers” and a regulatory principle that “we consider that consumers should take responsibility for their decisions”.

So what is underneath the FCA’s concerns, what is it proposing to do about them and what can advisers expect?

At a high level, the FCA’s concerns across the provider, asset management and adviser space can be distilled down to:

    Consumers are not getting sufficient information to make an informed decision.

    There is insufficient competition across the market and the industry relies on customer inertia to retain business.

    Existing consumers are not being treated fairly.

    The interim asset management market study suggests that there is very little price competition in the market and that taking everything into account, the investment performance from actively managed funds does not outperform passives or the relevant benchmarks.

    Consumer access to affordable advice and guidance.

So, how is the FCA proposing to deal with these shortcomings so far?

If you take a close look at proposed changes in packaged retail and insurance-based investment products (Prips), markets in financial instruments directive 2 (MiFID II), insurance distribution directive (IDD) and the recently introduced general insurance (GI) renewals, they have a common theme of increased transparency of disclosure to the end consumer – making sure that the consumer is placed in a more informed position.

From last month, the new GI renewals regulations require the industry to make the consumer aware that they should shop around for a better deal after three years and every year thereafter. 

In November last year, the FCA started a consultation on whether providers should have to tell consumers what they could get from another provider before buying an annuity.  While nothing is certain, it is probable that this will become a requirement and one which we support, with the expectation that this approach will be expanded into other areas in due course.

We have seen the FCA tackle provider exit charges and many providers have "volunteered" to reduce exit costs, particularly on pension products. On the pension freedoms and choice front, the FCA has consulted as part of its retirement outcome review and will issue its interim report in the summer and the final report in the early part of next year.  There is some suggestion that consumers (both advised and non-advised) may not be getting adequate information to make an informed decision.

In the run up to the retail distribution review (RDR) and pension freedoms and choice, and since then, the regulator’s focus has been on the providers and the advice sectors, with significant improvements in disclosure, downward pricing pressure reducing product and fund charges and the treatment of existing consumers coming into sharp focus, particularly in relation to legacy pension products.

While the FCA is often at pains to point out that it is not a pricing regulator, it can rely on treating customers fairly principles to ensure that a consumer is not unfairly taken advantage of.

While there is no expectation that the FCA will take its foot off the pedal in these two sectors, there is a very clear indication that the asset management and platform markets are going to receive much more scrutiny than they have in the past and the strong likelihood is that this sector is in line for a major regulatory overhaul, quite apart from the consolidation which is already happening in the market.

The FCA is promoting innovation and the use of technology to create access to and bring down the cost of advice. There has been a great deal of noise about the FCA sandbox, robo and cyborg advice but there is little evidence to date to suggest that this is attracting the level of consumer activity required to support a viable business model, and certainly not enough to support the current number of firms competing for the same share of wallet. There is also the perennial concern about systemic advice failures with automated advice and how the Financial Ombudsman Service (Fos) will look at future claims.

Most advisers no longer see robo or cyborg advice as a threat to their business but recognise it more as complementing their proposition for simple needs, such as an annual Isa investment.

So are advisers "value for money"?

In many instances value for money is often a difficult thing to quantify and measure without a clear benchmark or other reference point and it should not only be about the lowest cost.

While you can measure things like a reduced tax bill through convincing a consumer to withdraw their pension over a number of tax years rather than take it all in one lump sum, those opportunities are few and far between.

So how else can you measure value for money, as it can be a subjective assessment.

Consumers agree the remuneration upfront in pounds and pence before any activity is undertaken – it is reasonable to assume that they considered the price to be paid is fair and reasonable although it is less clear as to how much shopping around they have done or are prepared to do. Many consumers also have a long standing relationship with their advisers and that in itself suggests that they value and trust the adviser.

Last year, Tenet received back over 3,300 TCF questionnaires and the feedback on advisers’ service is always overwhelming positive, with 98 per cent of customers saying they were likely to recommend their adviser to a friend or relative.

Evidence shows that the IFA sector generates fewer complaints per customer than any other sector, with complaints against advisers falling 12 per cent between the first and second half of 2016 and a Freedom of Information Act request showing that the number of advice firms that have received complaints to the Fos has fallen by more than a thousand in the last three years from 2016. Additionally, the Fos uphold rate is substantially lower than the industry average.

Research from Unbiased in 2012 also demonstrates that there is an almost 90 per cent differential between pension pots held by consumers who had an adviser and those who had not. 

The FCA does acknowledge that consumers need to be educated about the value of advice and guidance but at this point there is precious little evidence that this sentiment will be turned into positive action.

However, unlike its predecessor the Financial Services Authority, the FCA does not have a financial education objective.

Rather than always focusing on the bad apples and tarring every sector with the same brush, perhaps the objective of more consumers seeking out and benefiting from suitable advice and guidance would more likely be achieved through promoting the value of advice and where to get it.

Mike O’Brien is group regulatory director of Tenet

Key points

In April this year the FCA published its business plan.

There are concerns that consumers are not getting sufficient information to make an informed decision.

Measuring value for money when it come to financial advice is proving difficult.