The Financial Conduct Authority has confirmed it is open to changing its regulation if the results of its advice market review show current rules are hampering innovation or failing to deliver the best consumer outcomes.
Last week the regulator published a call for input on the impact of the Retail Distribution Review and the Financial Advice Market Review, asking for industry feedback on the role of regulation in the market, barriers to effective competition and the affordability of advice and guidance.
The FCA asked advisers if its regulations are driving too many people to seek advice and admitted its actions may be having a "negative impact" on the market and consumers.
Speaking with Financial Adviser Nisha Arora, director of consumer and retail policy at the FCA, said the City-watchdog was open to looking at whether its regulation needed to be changed if found it was "skewing" the advice market.
She said: "We are looking at if regulation is actually facilitating the right advice for consumers, or is actually skewing, steering, or hampering innovation in any particular way.
"The call for input acknowledges regulation should be a force for good, protecting consumers and facilitating a competitive environment in the market - but at times it can get in the way and not deliver the right outcomes, and we’re open to looking at that in the review."
When asked if the FCA had seen any evidence in the market to spark concern surrounding too many people seeking advice as a result of its regulations, Ms Arora said the regulator was not approaching the review with any "preconceptions".
The concerns echo that seen in the final report of the FCA's Mortgages Market Study published in March, in which it found some consumers were being "unnecessarily" channeled into advice and a concern amongst lenders and intermediaries that they may be considered to be giving regulated advice if generic information led to a mortgage contract.
Ms Arora said: "In the Mortgages Market Study we saw and noted some of our regulation and the way it had been applied might well have steered consumers to take advice when actually it might not be needed.
"Where that’s the case, as with mortgages, we want to look at whether we need to change our regulation to encourage more innovation, ensure market competition, make sure consumers are getting a smooth journey and firms aren't being hampered by regulation."
The regulator's call for input asked respondents what barriers exist to making advice or guidance services more affordable, but advisers have since suggested that the cost of advice lies closer to home.
The rising cost of regulation and more recently the increasing price of professional indemnity insurance has raised concerns as to the affordability of the advice market, with the financial burden ultimately passed onto clients.
Ivor Harper, owner at Park Financial Ltd, said increased regulatory requirements have "beyond doubt" driven up the costs of advice.
He said: "As advisers, we really only have one source of revenue, our clients. As the regulatory burden increases, it absorbs more of our time, meaning we have less hours to engage in revenue generating activities.
"With less hours to make income the only ways to balance the equation are either becoming more efficient, which we always strive to do anyway, or increase the 'pounds per hour ratio', which means upping client fees.
"The situation is further exacerbated by the fact that not only has regulation increased its 'time demands' but it has done likewise with its financial costs too, such as the FSCS levy."
Mr Harper added: "If the FCA don't recognise that relationship, then they are seriously adrift of reality."
Martin Bamford, managing director at Informed Choice Ltd, said it is "ridiculous" for the FCA to be exploring the route of driving too many people towards advice and rather it should be finding ways to make advice more accessible and affordable.
He said: "A good place to start would be to crack down on dodgy sales activities, reducing the massive cost burden of the FSCS, which is symptomatic of failed financial services regulation.
"If the FSCS levy each year was slashed to near zero, and PI insurance premiums came down too, advice would become far more affordable, and many more consumers could benefit.
"The FCA should be making it their mission to slash the direct and indirect costs of regulation."
Ian Lowes, managing director at Lowes Financial Management, said he hoped the FCA's call for input would "go some way" to addressing the needs of the consumer with the needs of the retail IFA.
But whilst advisers are keen to help consumers and take on more clients, said Mr Lowes, businesses still have to remain profitable.
Mr Lowes said: "As a firm, we have tried to not disenfranchise lower value clients, which could be considered less economic since RDR.
"Not only do we feel obliged to continue to provide service to those who have trusted us for decades but we also recognise that lower values clients can become higher value clients and in every instance, any client is a good potential source of new client referrals.
"There is no doubt that the cost of being in business and servicing clients has increased under RDR and the impact on platforms and providers who had to adapt to new models was, and still is, considerable."
Ms Arora said: "We have done lots of work in different sectors affecting PI insurers, in fact we’ll be meeting them shortly following the work we’ve done around raising the FOS award limit. We’ve been engaging actively with the industry to understand people’s concerns and understand how the market is developing.
"So this review is not going to suck in all of that work which is going on, but obviously it will be informed by all of that work and also alongside the responses in the review.
"We’ll want to hear from people about what their concerns are and the impact, whether it’s regulation or market trends, is having on their firms resilience and the knock on impact on consumers in terms of affordability.
"Because ultimately we want to make sure what consumers are getting suits their needs and provides value for money."
rachel.addison@ft.com
