The Financial Conduct Authority and Treasury-led Financial Advice Market Review (FAMR) acknowledges that “a number of factors, including the significant costs of providing face-to-face advice, mean that it may not be economical for firms to serve consumers with lower amounts to invest or with simple needs”.
The “problem” is that advice is rigorous, controlled and expensive and my reading of this report is, while there are some things here that would certainly help the adviser market, the focus is on narrowing the advice gap by improving the availability of non-advice in its many guises, including guidance and information.
The final report has 85 pages and offers 28 recommendations. I’d prefer a shorter report and fewer recommendations, so I’ll restrict comment to the ten recommendations I think of most importance.
1. Regulated advice should be based on a personal recommendation in line with MiFID
This is an odd one on first reading. Any adviser advising in the current regime would give a personal recommendation.
But the purpose here is to be even clearer as to what advice is, so giving more clarity and hence, the freedom for firms to offer other sorts of help without tipping into advice-giving mode.
It’s all very well to suggest no algorithm can produce a personal recommendation but there will be immense difficulty in making sure such an outcome doesn’t seem personal, particularly where the automated system is highly sophisticated.
2. New guidance to support firms offering services that help consumers making their own investment decisions without a personal recommendation – or ‘guidance for guiders’
Good – much needed. Too many have laboured with uncertainty as to what simple advice might be or simplified or streamlined or limited. This has to be nailed.
3. Allow some form of trainee advice – working under supervision
I like this – keeps the current minimum standard for regulated advisers but allows firms to generate revenue from newer staff before they actually qualify.
A pipeline of advisers emerges – much needed given the current lack of new blood. By analogy and for those of you with hair – try John Frieda’s Academy – ultra low prices for a haircut from a trainee with close supervision at every step.
4. Improvements to suitability reports, reducing their length, where appropriate, and the time firms spend preparing them
Not a headline grabber but a very big deal – and one of the initiatives with the potential to stimulate the supply of advice by reducing costs.
5. Provide clarity on the standard types of information required in the fact find process
Again, this has the potential to really make a difference to advisers’ work.
6. Explore options to allow consumers early access to a small part of their pension pot to pre-pay for pre-retirement advice
This one is a headline grabber, but I think unlikely to work. Take money from your tax favoured investment to pay for advice on what to do with it? If they bought the idea of advice they’d pay for it anyway and if they didn’t, they wouldn’t?
7. We need a shortlist of potential new terms to describe ‘guidance’ and ‘advice’
Great fun, but a waste of time – hopefully a short waste of time.
8. The 2016 FSCS funding review should explore risk-based levies
Good. From an adviser perspective, paying for the off-piste activities of other advisers is deeply unsatisfactory. There will be deep disappointment if this one doesn’t come off.
9. A review of the availability of PII cover for smaller advice firms
Like any insurance matter this is all about clarity of liabilities. The double bind whereby advisers need to demonstrate capability to deal with non-mainstream solutions makes professional indemnity insurance (PII) a challenge, which needs to be sorted soon.
At the same time newer – automated or robotic advice/ guidance will also need clarity.
10. The FCA should not introduce a long-stop for referring complaints to the FOS
This is the only stated non-recommendation and the rationale here appears to be that few claims are over 15 years old.
This misses the point – from an adviser business point of view this is all about potential liability, which is also the issue for potential new capital considering entering the advisory sector.
Another non-recommendation, this time not mentioned in the report, is the non-revival of commission. A good call I think.
The advice profession needs more time to bed in and the Retail Distribution Review principle – that remuneration should be a matter for client and adviser – is absolutely fundamental. Commission now, even on a limited basis would muddy the waters.