A long-stop on advice liabilities must be introduced to ensure a properly functioning mass-market model can thrive, according to the Association of Professional Financial Advisers (APFA).
Director general Chris Hannant told members of the Work and Pensions Committee the fear of opened ended liability made advisers reluctant to get involved in simplified advice despite pensions freedom creating a greater demand for less sophisticated advice.
Hannant said most of the clients APFA’s members deal with have retirement plans in place and were “more worried about planning for IHT than a basic income for retirement”.
However, he added there was more the profession could do to develop low-cost advice solutions for the mass-market.
“There are firms out there developing telephone-based services but the traditional advice model is costly.
“It is the Saville Row of tailoring where as we need an M&S type offering [for the mass-market].
“One of the fundamental cost drivers for a financial firms is the liability that is attached for getting it wrong. That is the number one concern for the larger firms who could offer a broader-based service.
“That comes down to Financial Services Compensation Scheme (FSCS) levies, Financial Ombudsman Service, and lack of a long-stop.”
He said while the Treasury and regulator’s Financial Advice Market Review was looking to establish a framework for the development of a mass-market solution it would need to first address the issue of liabilities that are forever attached to advice.
Hannant also said the current regulatory system is geared up to “regulate on the sale of a product but advisers are providing advice as a service”.
“We do have a problem with distinction between different types of advice. And between advice and guidance.”
He also said here had been incidents where an adviser had, for example, set up a self-invested personal pension, the client had then undertaken their own investments but the adviser had still been held responsible.
“There is no time limit on which a complaint can be brought to the ombudsman. There are long tail liabilities.”
Hannant added the way the FSCS is funded needed a “fundamental hard looking at”.
He also said many advisers can foresee problems “further down the line” as pensions freedom beds in over the coming years.
“Everyone is saying things have gone reasonably well, they haven’t fallen over.
“But the biggest concern among my members is that they foresee problems further down the track. We won’t know until five or ten years down the track [if the reforms have been a success],” commented Hannant.
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