Gareth James: Speak now (on consumer investment) or forever hold your peace

Gareth James looks at the FCA's call for input on the consumer investment market in his latest piece for Retirement Planner. And in a first for the publication, quotes Leonardo da Vinci, who said: “Nothing strengthens authority so much as silence”...

The FCA’s Call for Input: the Consumer Investments Market has the feel of a paper that everyone should take an interest in.

The breadth of focus at this point in the opinion-gathering process, and the high-level nature of many of the questions, means there’s a danger that some may struggle to engage with the areas which have the potential to have a significant impact on both them and their clients in coming years.

One point that can’t be disputed is that views are far more likely to be heard by the FCA if they’re expressed through a response to the consultation than via comments on social media or grumbles with colleagues. With that in mind I’ve attempted to summarise the paper to allow those who do want their voice to be heard to contribute.

In my mind the content of the paper can be broken down into two distinct groups:

Firstly, there are the sections where it appears the FCA is in the early stages of gathering views as to how the consumer investment market as a whole can work better.  Within this group I’d include the chapters titled:

  • The Consumer Perspective – this recognises that many individuals find it hard to make good decisions around investments and considers how people might be helped in making those decisions. The timing of educational interventions is a particular area of focus with the FCA’s paper linking to an interesting academic study on the dwindling effectiveness of financial education the further removed an individual becomes from the delivery of that education.  I can’t help worrying that the academic paper is looking at the ineffectiveness of one-off ‘teaching’, when what would help people most in good financial decision making is ongoing ‘coaching’.  
  • Making The Market Work Well – this chapter focuses on how to help the many, many people who only have very straightforward financial needs.  It looks at getting the right help to those people through guidance; the delivery of ‘straightforward advice’ on what feels like a simplified, almost transaction-specific basis; and how to make the parts of the market where customers buy direct, for instance D2C platforms, work well. 

Comments from the ABI on the role providers might have to play in solving the problems in access to guidance and advice has already kicked off a passionate and public debate amongst a range of financial commentators around what the provision of guidance and advice might look like in the future.  If I had to choose one chapter for advisers to consider, this would be the one. 

  • Competition and Innovation – this chapter very much focusses on the potential for new uses of technology to help deliver guidance and advice. Whilst it’s only a short section, the five questions asked will potentially be of interest to those with expertise in the field of technology. Sadly, that excludes me!

On top of these three very high level market-wide sections, the Call for Input also looks on a more granular basis at individual aspects of the financial sector where the FCA has identified a specific problem it wishes to address and drive improvements.

Within this group, I include:

  • Higher Risk Investments – another area of potential interest to advisers. The focus here is on trying to ensure the sophisticated and high net worth investor systems are working correctly so that only those with the resources to invest in higher risk investments are doing so; making sure investors are doing so appropriately; and in a fully informed manner.
  • Regulatory Protections – this chapter considers how awareness of regulatory protections available to consumers, such as the FSCS, can be improved.
  • Fair Compensation – fairness is used in two different ways here. Firstly, making sure consumers are able to access compensation. But also, and potentially of most relevance to advisers given the ongoing debate around regulatory levies, considering how the funding of compensation can be dealt with more fairly.
  • Scams – this can be summarised simply as “how can we better stop people from being scammed”?

Summarising, the FCA’s work on the high level group of topics feels like it may be the start of an extremely important initiative, going a long way towards shaping what the consumer investments market could look like in the next few years.  Advisers engaging with the FCA directly on this, or by expressing their opinions through relevant professional bodies, will potentially be shaping the future provision of financial advice.

And while the second group of issues don’t feel quite as significant on a market-wide level, the fact that the FCA is targeting specific current problems, means that changes have the potential to have a more immediate impact on advisers and their clients. Using social media as a barometer, the work on the funding of the FSCS levy will be of interest to many.

So that just leaves the question of whether to do nothing or respond where you have views. I’ll leave that to readers, but am reminded of a quote from Leonardo da Vinci, “Nothing strengthens authority so much as silence”.

While it’s unlikely Leonardo was considering FCA Calls for Input when he said this, the sentiment is still valid.

Gareth James is head of policy at AJ Bell