Regulation  

Calls for adviser protection as financials probed

Calls for adviser protection as financials probed

Panacea Adviser has called for greater financial protection for intermediaries as the regulator sets its sights on regulated companies’ balance-sheet strength.

Derek Bradley, chief executive of Panacea Adviser, said the adviser market was the “weakest part of the financial services world” when it came to capital adequacy and financial resilience, due to the fact it was in the crosshairs when it came to consumer redress.

He said the current framework meant providers were not responsible for the products they created, meaning the lion’s share of responsibility in terms of redress fell to advisers.

Mr Bradley said: “The bulk of distribution of the products has been through the intermediary channel. By doing this, the product provider has in effect aggregated responsibility to the adviser firm because they are the ones giving the advice.

“The vast majority of advice firms are small to medium-sized firms which are required to have just £20,000 of capital adequacy. Just a couple of hits could send them over the edge.”

Mr Bradley’s warning came as the regulator is to probe the impact of the coronavirus crisis on advice companies’ finances.

Last week, FTAdviser revealed the Financial Conduct Authority was carrying out a survey to determine how financially resilient advisers had been in the face of the coronavirus pandemic.

The survey asked advisers detailed questions about their income and how much they expected to lose, if any, as a result of the knock-on effects of the pandemic.

Speaking at Pimfa’s online conference last week, Megan Butler, the regulator’s executive director of supervision – investment, wholesale and specialist, said one of the key reasons the FCA was doing the survey was to get a “really strong sense” of the financial wellbeing of the adviser industry.

She added: “A great deal of work we are doing at a practical level [is] to try to size what the [Financial Services Compensation Scheme] pipeline might look like, so we can think about how we can avoid very lumpy bills.”

Ms Butler also said the FCA would look at how it could “potentially develop” a different way of thinking about fee collection so advisers did not get hit with “unexpectedly large bills”.

Panacea Adviser’s Mr Bradley said one of the ways to mitigate the financial pressure caused by potential redress on advice companies was for products to become regulated and “certified”.

Within this framework, the regulator would ‘tick off’ products suitable for a range of people – the intention being that, were regulation to change and a given product no longer being deemed suitable, advisers could not be hit with historic advice claims.

It would also present the investor or consumer with a list of checklists to sign that ensure the investor understood the nature of the investment and the risk involved. This would protect the investor against bad advice – if they disagreed with the statements set out about the product – and protect good advisers from many ‘insistent client’ claims.