FCA reveals how it will measure success of FAMR

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FCA reveals how it will measure success of FAMR

The regulator has identified three main themes it will use to measure the success or failure of its project to close the gap between those who need advice and those who can afford it.

They are accessibility, affordability and quality of advice. 

These will be tracked on an annual basis and results published on the Financial Conduct Authority’s website.

This marks the next stage in the Financial Advice Market Review, a joint project between the regulator and HM Treasury, to better equip Britain to make good financial decisions.

To monitor progress on the three themes, the FCA has carried out ‘state of the nation’ type research into the UK’s current habits, wants and needs when it comes to financial advice.

These baseline findings will be used as a benchmark to assess the success of the FAMR in 2019.

This quantitative research shows just 6 per cent of UK adults - or 3.2 million people - received financial advice on investments in the last 12 months.

However 25 per cent of people – 12.8m Britons – have not had advice but might have a need for it.

Of those who had taken advice, just 3 per cent used technology-based automated – or ‘robo’ – advice, with early indicators the 18-34 age bracket were the early adopters.

The research found only muted interest in advice in the workplace, mainly on the grounds of cost and confidentiality, but identified a greater interest in workplace information and guidance. 

Other findings pointed to those less likely to take advice being less aware of how to find a financial adviser, and had given less thought to retirement planning.

One of the key indicators of the accessibility of advice is the number of firms and advisers in the market. 

FCA data showed the number of staff who advised on retail investment products at end of December 2016 was approximately 34,600.

This included 5,218 firms of financial advisers, with 25,611 individuals advising on retail investments.

Independent financial advice makes up the majority of the advice on offer in the sector in 2016 with 83 per cent of firms providing independent advice versus only 15 per cent providing restricted advice.

In respect of retirement income advice the majority of firms in the sample (82 per cent) said that they did not use minimum pot size thresholds. 

Of the 38 firms that reported the minimum pot size thresholds for retirement income advice that they used, 21 had thresholds of £50,000 or less, and 15 of £30,000 or less.

Financial advice firms were asked what they thought were the biggest barriers to them offering mass market financial advice.

They rated fees and levies the biggest barrier, then uncertainty around regulations, then a lack of clarity over what constitutes regulated advice.

On affordability, the results show that just under half (46  per cent) of UK adults would be willing to pay for regulated financial advice if the costs were ‘reasonable’.

However most people set that limit at around £500, much lower than the average and median advice charges.

Overall, percentage charges were on average just over 3 per cent for initial advice and almost 0.7 per cent for ongoing services. 

Restricted advisers recorded slightly higher initial charges but slightly lower ongoing charges than independent advisers over the period.

On the final measure, quality, the FCA’s research found that where people took advice, most were satisfied with the advice they received with their advice experience.

Personal interaction, particularly face-to-face, was highly valued, especially where larger sums were being invested. 

Participants felt that forming a relationship with an adviser provided valuable reassurance and established trust.

Looking at 1,100 individual pieces of advice given by 656 firms, the FCA found widespread suitable advice.

In 93.1 per cent of cases the sector provides suitable advice, unsuitable advice in 4.3 per cent of cases, and in 2.5 per cent of cases the sector provides unclear advice.

FAMR was launched in August 2015 to explore ways in which government, industry and regulators can stimulate the development of a market to deliver affordable and accessible financial advice and guidance to everyone.

The FCA has also confirmed that the Post-Implementation Review of the Retail Distribution Review, scheduled for 2017, will now be combined with the 2019 FAMR review. 

This will allow the market time to react to the regulatory change from both FAMR and MiFID II and also allow the FCA to make best use of its resources and minimise the reporting burden on firms.

The FCA also announced today the expansion of the scope of the Advice Unit so it will now take in firms developing automated advice models within the mortgage, general insurance and debt advice sectors.

The Advice Unit will also now accept firms that want to provide guidance instead of regulated advice as well as firms not intending to seek authorisation.

The application process is also changing so that the Advice Unit will now be accepting applications from firms throughout the year, rather than on a cohort basis.

There have been two cohorts of firms who have participated in the Advice Unit so far.

Ten firms were accepted in Summer 2016: evestor, FinEx Capital Management, HSBC, Lloyds Banking Group, Money Guidance, Mortimer Mackenzie Ltd, National Westminster Bank Plc, Nationwide Building Society, True Potential Investments, Santander

The second group of seven firms joined in early 2017: 1825 (part of the Standard Life group), Direct Life & Pension Services Limited, Investec Click & Invest, Moneyfarm, Multiply.ai, Personal Touch Financial Services Limited, WealthKernel.

laura.miller@ft.com