Peter Mann, former vice-chairman of Old Mutual Wealth and chief executive of Bankhall, said the 2012 Retail Distribution Review has been unsuccessful in improving accessibility to financial advice.
The Retail Distribution Review required advisers to ditch commission in favour of customer agreed remuneration and raised their qualification level in order to operate in this industry.
According to then regulator, the Financial Services Authority, the Retail Distribution Review was a key part of consumer protection strategy.
The FSA stated; "It is establishing a resilient, effective and attractive retail investment market that consumers can have confidence in and trust at a time when they need more help and advice than ever with their retirement and investment planning."
However adviser numbers dwindled following implementation of the Retail Distribution Review.
In 2015, the FSA's replacement, the Financial Conduct Authority, reported the number of financial advisers offering professional advice had fallen from around 26,000 in 2011 to 24,000 in 2014.
Mr Mann said it was clear the financial planning sector required a rethink of its current regulatory framework to make advice relevant to everyone and not just ‘people who have money’.
Speaking at the Momentum UK Financial Wellness Roundtable, Mr Mann said lessons could be learnt from South Africa, which has two separate frameworks to suit the wealthy and non-wealthy.
Mr Mann’s comments follow research from Momentum UK, which suggested a large portion of the UK would struggle to meet the current costs of financial advice.
The UK-wide survey of approximately 2,000 individuals conducted in late 2016 found a third (32 per cent) of UK adults would find it difficult to meet an unexpected major expense, two fifths (39 per cent) have had to make cutbacks in the last year to make ends meet, while a quarter (24 per cent) of UK adults have less than £100 in savings.
According to a report from search-for-an-adviser service Unbiased, the standard hourly fee for a financial adviser in the UK is £150 and an initial review costs an average of £500, while more specialist advice, on areas such as direct benefit transfer, will cost closer to £1,500.
On top of this, just one in five advisers (22 per cent) deal with clients of any wealth level.
At the roundtable, Mr Mann stressed that the responsibility for making advice affordable did not lie just with advisers, as “financial services manufacturers have a large role to play in bringing products and services to their customers” and that “understanding of the client should go through all of the parts of the value check.”
His sentiments were echoed by Matt Connell, director of policy and engagement at the Chartered Insurance Institute, who suggested a new Retail Distribution Review was needed “that was suitable to people’s lives”.
Lucian Camp, of Lucian Camp Consulting, added that he was worried “about the affordability of advice for the mass market consumer”.
Speaking after the event, Samantha Seaton, managing director of Momentum UK, said: “We must find a way to make the economics work so that financial advice is available to the mass market for the right price.
“Most industries have already evolved and adapted but in the financial planning sector we’re still waiting for innovation to fully pave the way for this.”
The comments about a need for a rethink of regulation to boost access to advice comes despite the Financial Conduct Authority and HM Treasury launching the Financial Advice Market Review back in 2015.
Last year the Financial Advice Market Review made several recommendations on how to improve access to advice.
The final report, published early last year, called for HM Treasury to consult on changes to legislation to narrow the definition of regulated advice so that it is based on a personal recommendation.
This would create a single definition for regulated financial advice and remove some of the barriers that exist for firms wishing to offer guidance services.
The report also recommended a number of measures for the Financial Conduct Authority to take forward, aimed at giving firms the confidence to deliver cheaper, streamlined advisory services focusing on specific consumer needs.
It stated the regulator should also consult on measures to support firms developing guidance services that help consumers make their own investment decisions.
The review also highlighted the increasing role that technology can play in creating a more engaging, cost-effective advice market.
It recommended that the FCA extend the work of Project Innovate and establish a unit to help firms develop their automated advice models.
To make advice more accessible, the FAMR report called on the government to allow consumers to access a small part of their pension pot to redeem against the cost of pre-retirement advice.
emma.hughes@ft.com
