In its 66-page advice market evaluation, published yesterday (December 3), the Financial Conduct Authority said it wanted more people to have the confidence to invest, as this would be “good for consumers, good for the industry, and help to support the wider UK economy”.
The regulator thinks that in order for the market to develop this way, a broader range of services need to be offered so more consumers can get the support to decide whether to invest and to find appropriate investments.
It also raised concerns about a lack of competition in the advice market, which, in turn, had resulted in a lack of new services, particularly for less wealthy customers.
Prod push
Experts predicted that one way the regulator could make moves to achieve such a goal would be to double down on its Product Governance rules, which require advisers to ensure they clearly meet the needs of their identifiable target markets.
By doing so, advisers could be encouraged to offer different services to different customer groups.
Rory Percival, former FCA-man turned consultant, said: “For the existing advice sector, there is nothing the FCA can really do to improve competition from the demand side given the trust basis of the market and lack of consumer price sensitivity.
“Hence I think the FCA will focus on the supply side. I think it will focus on Prod implementation in firms.
“Prod compliance, by its focus on a firm’s client bank and formal process for linking propositions to client segments, should encourage greater competitiveness in the services across the market.”
Janine Menasakanian, investments consulting director at Altus, agreed, saying the FCA could encourage advice firms to take a “closer look at better defined segmentation”.
This would result in advisers being able to offer a differentiated service for consumer needs and, as a result, encourage mass market adoption, Ms Menasakanian said.
Others in the industry were less optimistic about the regulator’s focus on fees.
Heather Hopkins, managing director at NextWealth, said: “Charges are important - they have a huge impact on financial returns. But we need to stop this fixation on cost and root out the reasons for the charges.
“The cost of regulation keeps climbing - FCA fees, FSCS levies, PI cover and admin to comply with the rules.”
Mike Barrett, consultant at the Lang Cat, said it had been clear the FCA had concerns about ongoing fees for a while, but yesterday's push from the regulator lacked a “so what” element.
According to Mr Barrett, the market was likely to see the regulator tackle this in a more head on fashion next year.
Rise of robo
The FCA is also still clearly hooked on the idea that automated advice - a cheaper alternative to holistic financial planning - is at least part of the solution to introducing more consumers to investing.
In yesterday’s paper, the regulator pledged to continue to support its development, noting there were signs of progress in the market.
Consultants believed the regulator would double down on its work on robo-advice in order to help innovation in the marketplace.
Mr Percival said: “The FCA might want to see the markets working differently, with more innovation and competition, but it is limited in what it can do as it can only be a facilitator, not a driver.
“It is inevitable that it will continue – and possibly expand – its Advice Unit work to support innovative firms in the automated advice and guidance fields, and possibly tech firms supporting the advice process, to aid the innovation and cost saving savings.
“I think it will also be very supportive of the banks looking to bring out automated advice propositions.”
Ms Menasakanian said it was “promising” that the FCA recognised the lack of innovation in the advice space and that it was looking to help firms in this arena.
She added: “Clearly post-lockdown some aspects may have changed, but in the main I know that advice firms and new fintech start-ups have been timid about being too daring in case they end up with a slap on the wrist from the regulator.”
imogen.tew@ft.com
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