Five key points of FCA’s latest advice report

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Five key points of FCA’s latest advice report

Increased access to advice and guidance for all consumers was a main theme of the Financial Advice Market Review recommendations.

Now, 15 months after the FAMR recommendations were made, the Financial Conduct Authority has revealed how it will assess whether the measures resulted in more people being able to get help with important financial decisions.

Here are the five key takeaways for you from the 48-page report on the Financial Advice Market Review published by the FCA today.

1) Advice is now for the few

The FCA’s quantitative research showed that 6 per cent of UK adults (or 3.2 million people) received financial advice on investments in the last 12 months. 

Just under half (45 per cent) of those who have not received advice in the last 12 months report that they have had regulated financial advice related to investments, saving into a pension or retirement planning in the past. 

However, the regulator claimed these figures may not represent the true number that have received advice in the past, due to respondents’ imperfect recall and limited understanding of regulated investment advice which result in a risk of overestimation.

A quarter (26 per cent) of all UK adults used at least one form of guidance or information in relation to investments, saving into a pension and/or retirement planning in the last 12 months. 

Around a quarter of consumers who had not received advice had used guidance or information to help with similar financial decisions. 

Most people using information or guidance were doing so in relation to investments, with 14 per cent purchasing an investment with a lump sum as a result of the information or guidance they received, 9 per cent starting or increasing monthly payments into an investment, and 9 per cent changing the funds or assets in an investment.

2) Robo-advice is for the even fewer

Just 3 per cent of those who had received regulated financial advice in the last 12 months related to investments, saving into a pension or retirement planning had received automated online advice. 

According to the FCA this is a low figure and “is to be expected given the embryonic nature of the market.” 

Although small sample sizes mean that it is difficult to make any definitive statements about those who are using this particular channel, the FCA said there is an early indication that 18 to 34-year-olds are likely to be the early adopters.

3) FCA will finally take a snapshot of industry

The regulator confirmed in the paper that it will finally measure the advice industry.

The FCA identified a range of indicators to give a snapshot of the market for financial advice and establish a baseline to allow it to monitor developments and assess if the Financial Advice Market Review have made any difference.

A review of the outcomes of the Financial Advice Market Review is planned for 2019. 

On the demand side, the watchdog will calculate how many consumers use advice and guidance and grasp what are the different channels they use. The watchdog will ask why some people are not taking advice and assess consumers’ willingness to pay for advice.

The FCA will explore consumer levels of engagement, the levels of satisfaction with advice and complaints data.

On the supply side, the regulator will calculate the number of advice firms and advisers currently operating in the UK and finally give a breakdown of how many firms are independent versus restricted.

The regulator will calculate the minimum investment/pension pot size advised on and seek industry views on the clarity of the regulatory framework for agreeing adviser charging structures.

The FCA will also examine how many advisers now offer robo-advice.

4) Review of RDR rolled into FAMR review

In 2012 the Retail Distribution Review (RDR) introduced new requirements in the market for retail investments designed to address the potential for commission bias to distort consumer outcomes, improve service disclosure and increase professional standards of advisers. 

At the time of RDR implementation, then regulator the Financial Services Authority committed to conduct a post-implementation review (PIR) in two phases, to be published in 2014 and 2020. 

When the FCA took over it completed the first phase of the review in 2014 and announced an “intermediate stage” review in 2017. 

Today the watchdog announced in order to allow the market time to react to the regulatory changes from FAMR and Mifid II and to “ease the burden on the industry” and “make best use of our resources” there will now just be one more post match review of the RDR.

This single review will be rolled into the post-FAMR review which is scheduled for 2019 with the final report due in early 2020. 

5) FCA can’t do it alone

In a paragraph that I am sure will be used to justify why access to advice won’t have improved by 2020, the FCA made it clear it can’t implement the Financial Advice Market Review measures on its own.

While FAMR is intended to create the right conditions to make the market for financial advice work better for consumers, the FCA stated its success depends on the actions of a number of different organisations, including the regulator itself, HM Treasury, the Financial Ombudsman Service and the financial services industry.

The regulator stated it is these organisations “continued cooperation and commitment” that is required if access to advice is to improve. 

The FCA stated: “The success of FAMR also depends on the financial services industry taking up the opportunities provided by the measures taken. 

“In addition, the consumer research findings indicate a significant lack of engagement with financial advice amongst consumers which developments in the industry may not necessarily address. 

“It may also be difficult to attribute the causes of changes in the market, especially in the light of the significant environmental changes expected over the coming years (such as Mifid II implementation and Brexit).”

emma.hughes@ft.com