Recent discussions have confirmed my initial impression that the advice sector is valued but advisers are not.
The Government and its agencies often see financial advice as a solution to problems. For example, the Government is looking to introduce a voluntary code to cover incentivised transfers from pension schemes, as it is concerned that members of schemes are being unfairly induced to agree to changes that may not be in their best interests. To help address this – financial advice. The Pensions Regulator is also concerned about employers being able to navigate the challenge of auto-enrolment and enable employees to make good decisions. The solution – financial advice.
In fact, the Government is so keen on financial advice, it is spending £80m of the financial services sector’s money to revamp the Money Advice Service, the intention being to provide mass-market generic advice.
When I say advisers are not valued, I do not believe there is some anti-adviser agenda that is being pursued by financial regulatory authorities and the Government but there is a carelessness about their behaviour. They seem to be unaware of the cumulative cost their decisions have and to miss the important point – that there is no advice without advisers.
Just this year, in terms of direct costs, we have seen a big increase in FSA fees and more recently the FSCS supplementary levy of £60m. Obviusly, there are the preparatory demands of the RDR and adapting to the significantly altered environment, which, on its own, represents a massive challenge. There will be a new regulator, keen to show how different it is from its predecessor and make a mark with its new powers. The retail conduct risk outlook (which firms are expected to read and assess whether they are acting appropriately) highlights a wide range of concerns the FSA has identified for further investigation. Even if regulator reviews or other supervisory investigations give a sector a clean bill of health, it takes time and resources to track what is going on and respond to the conclusions.
This all adds to the cost of doing business, and so the price of advice to consumers, reducing demand which, eventually, will put firms out of business. The new regulator will have a statutory objective of ensuring that financial services markets function well. I think that a key characteristic of a well functioning market is that it can meet the demands of consumers in general. There is a risk that by loading ever rising costs on to the sector, it becomes increasingly costly to provide a service that ends up beyond the means of more of the population. If financial advice is a good service that provides an answer to the problem of managing the complexity of an individual’s financial needs over their lifetime, the Government and regulatory authorities need to consider their actions in a wider context if they are to better enable access to financial advice.
Chris Hannant is policy director at Aifa