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FAMR proposes changing advice definition and early pension access to pay for advice

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The Financial Advice Market Review has called for the definition of advice to be amended and to allow consumers to access their pension pot early to pay for the cost of advice.

The final report as part of the FAMR, published today by the FCA and the Treasury, sets out a total of 28 policy recommendations to boost access and affordability to advice, as well as addressing issues related to the liability of giving advice.

Among the recommendations is for the Treasury to consult on the definition of regulated advice as set out in the regulated activities order, so that regulated advice is based on a personal recommendation.

This would bring the definition of advice in line with Mifid rules.

The consultation on amending the advice definition would be supported by FCA guidance on firms that want to offer “streamlined advice” on a limited range of consumer needs.

The FCA says this would be backed by case studies higlighting the main regulatory concerns when designing streamlined models.

As part of measures for a clearer advice framework, the review also calls for changes to time limits on qualifying as an adviser so that trainee advisers can work for up to four years under supervision to obtain an appropriate advice qualification.

The review calls for the financial services industry to work with the regulator to improve suitability reports by reducing their length and the time firms spend preparing them.

An advice unit should be established by the FCA to help firms develop automated advice models.

The review also wants the Treasury to “explore options” to allow consumers to access what is described as a “small part” of their pension pot before the normal minimum pension age. This would then be redeemed against the cost of pre-retirement advice.

The Treasury has also been urged to look at how to improve upon the existing £150 income tax and National Insurance exemption for workplace pensions advice.

On liabilities, the review has proposed that risk-based levies should be considered as part of this year’s funding review of the Financial Services Compensation Scheme. The review also wants to see reform to funding classes.

It says the FCA should examine whether to review the availability of professional indemnity cover for smaller advice firms.

As Money Marketing reported last month, the review has ruled out introducing a 15-year long-stop for advisers.

However, it has called for the Financial Ombudsman Service to publish more data on its uphold rates, particularly where advice was given 15 years prior to the complaint.

FCA acting chief executive Tracey McDermott says: “The package of reforms we have laid out today will help increase both the accessibility and affordability of advice and guidance to ensure consumers get the help they need when they really need it.”

Treasury financial services director general Charles Roxburgh says: “At a time when more and more people are seeking financial advice and guidance, we have set out how we can deliver a vibrant financial advice market that works in the interest of all consumers.”



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There are 13 comments at the moment, we would love to hear your opinion too.

  1. What about up front mention…vast majority of middle income clients looking for advice hate fees..that is the single biggest factor in creating this advice gap… no change in fees then the gap turns into a gulf

  2. The FCA is not very popular with me at present as it has published on the morning I depart for the Cheltenham Festival! So these are just some knee jerk reactions.
    A welcome to looking at funding compensation on a risk base. This is exactly what I said FSA should do when I responded to its CP 12/16 “It is my suggestion that the FSA needs to look more closely at a solution that is based on risk, in effect trying to come up with a solution where potential polluters pay more because of the risks they pose. This is not a novel concept. The FSA itself floated the idea in 1997 in CP5 but to the best of my knowledge it has never followed up on its pledge to look more closely at the idea. ”

    Once again the left hand of Government does not know what the right hand is doing. Last week was the close of the NAO’s request for in -put on “Reducing Regulation”. Yet here is FAMR promising more “guidance” being dumped on the industry, much of it simply repeating in different words what has been said many times before.

    The banks and insurance companies have won. It looks like consumers will be in for a lot of “streamlined advice” propositions that at best deliver a sub-optimal outcome for consumers.

    APFA falls flat on its face again. It was clear there was never going to be a long-stop.

    A review of PII is welcome. I described it in one response recently as being as much help as a chocolate teapot in many cases.

    A lot of what is going to be done sounds like free consultancy from the FCA which will be hoovered up by the big firms and small IFAs won’t get a look in.

    “Regulated advice is based on a personal recommendation”. Excuse me? Has that not always been the case.

    We are going to have a “thumb and nudges” body – the FAMR equivalent of the Ministry of Silly Walks.

    That’s it for now. I’m now going to concentrate on packing and the form for the coming Festival

  3. Stitch up….

  4. I’m struggling to understand why early access to pension pots to pay for advice fees is necessary. Can’t adviser charging be used to achieve the same thing?

  5. This sounds like a lot of detailed information that reiterates what is currently in place. Regulated advice to be only that which is derived if a personal recommendation is given????? Forgive me for sounding as thick as 2 short ones but is that not currently the case? Confused adviser. Please explain how this is different

  6. ref my last, I have copied the following from the FCA website regarding advice

    “If you are only given general information about one or more investment products, or have products or related terms explained to you, you may have received ‘guidance’ rather than ‘advice’. This is sometimes also called an ‘information only’ or ‘non-advice’ service.

    The main difference between guidance and advice is that you decide which product to buy without having one or more recommended to you.

    Buying an investment product in this way might reduce the cost involved but it also means you might not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.”

    So unless you have received a personal recommendation you have no recourse, therefore the advice you have received is not covered by the regulations. Therefore if you have only received generic advice you have not had a personal recommendation thus you have not received regulated advice. This is definitive as its on FCA website so there is absolutely no change to what we have now.

  7. This document says little but opens up door ways for loads of smoke filled room negotiations.

    If FAMR was to tell us whether regulation was for the protection of the consumer or the powerful. The powerful win again. Gives Libertatem a ton of work now we need the support

  8. How much has this review cost?
    What a waste of money

  9. Duncan Lancashire 14th March 2016 at 3:54 pm

    Quote from FG15/1:
    The regulated activity of advising on investments under Article 53 of the Regulated Activities Order (RAO) is wider in scope than investment advice under MiFID. This is because MiFID requires advice to be of a personal nature whereas the RAO does not.
    MiFID investment advice involves the provision of personal recommendations to a customer, either upon the customer’s request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments. So, for example, if a firm provides recommendations to the public generally this will not normally be a personal recommendation. Our suitability rules only apply to a firm that makes a personal recommendation or manages investments. However, if a firm is giving regulated advice that does not involve a personal recommendation, other requirements in our Handbook such as our Principles for Business and Conduct of Business rules will apply (for example, the requirement to conduct its business with due skill, care and diligence in PRIN 2.1.1R and the client’s best interests rule in COBS 2.1.1R).

    What this means is that any firm thinking of developing a web-based tool that is designed to guide a customer in their selection of a suitable product could easily sail the wrong side of the “regulated advice” line. Basically, unless you just lay out the information and say to a customer “Here you go, you decide” then you could be giving advice, which is not very helpful for the consumer.

  10. It does seem a long winded way of effectively setting out no real concrete solutions!
    I thought I sent them a half decent answer for the “advice gap” (i.e. for those that cannot afford full advice fees) – which was that if the total fee (for advice) was below a certain maximum, eg £300, then it should be free of ALL regulatory and liability considerations – i.e. SOME professional advice is better than NONE and this could only be delivered by properly regulated advisers
    It might not be a business model we’d all pursue, but some would, and a qualified adviser would massively improve someone’s ability to self-implement a (simple) financial plan in 90/120 minutes of 1 to 1 time; no comeback, no more work than that.
    Better than bland guidance surely, if the client cant or wont pay the full regulated advice fee??

  11. Just dancing around the fire then!!

  12. As Martin Bamford said (in so many words) what tosh.

    So what are the numpties in Westminster on about allowing people to draw down to pay fees? Perhaps they should examine the basic situation first:

    This is just the biggest farce imaginable. Let me shed some light from the perspective of my new situation as a member of the public (as I am no longer regulated).
    I can add to my pension, I can manage my pension, I can go into drawdown (after much hoop-la), but buy an annuity? Well there are a few companies that will allow me to go direct, but most insist that I go through an intermediary. I can’t use the Exchange and MAS is rubbish. An indicative quote which is over optimistic and doesn’t state any companies at all. Amazingly, the Regulator is under the positive impression that all annuity providers will deal directly with the public and when they are corrected, refuse to accept the contrary. Is this another example of how out of touch they are with the ‘sharp end’?

    The different treatment by the available firms is illuminating. Canada Life is its usual efficient and friendly self. Aviva on the other hand seems determined to make one loose the will to live. Over one hour on the phone. (Canada Life – 15 mins). It cut no ice telling the operator that I am CFPcm Chartered CISI. (And with up to date CPD). When I suggested that she should first give me the figures and if these were competitive I would then gladly submit to her banal and repetitive questions. But – no the computer says….. So after the hour the figures were mentioned and were way out. So her time and my time was entirely wasted and the whole thing could have been a lot more efficient. I knew exactly what I required and was in all probability a lot better qualified than she was.

    The next surprise was something I imagine few advisers have seen. The charge by the annuity company in question is 1.38% (we are talking high six figure pension funds). When I queried this I was told that this is the standard charge. It is displayed for those who go direct, but if through an intermediary, this charge isn’t shown. I confess in all my years I never knew this and now feel very guilty that I wasn’t able to disclose this to clients. Bear in mind that I charged a flat fee for annuities which was always well below 1% on anything over 6 figurers.

    Now perhaps I begin to understand why financial services are often (but not always) held in such low esteem by the public.

  13. Nick Pilkington 14th March 2016 at 5:45 pm

    I had hoped that some positive results would come from RMAR as the indications appeared to be that the FCA wanted to listen. It appears that there is no will from the FCA to genuinely improve outcomes for clients or to listen to the concerns of IFAs whose living is based on service to clients.
    We thrive (under extreme difficulty from the regulator) simply because we provide clients with what they want at a reasonable cost. I would have hoped that our views might carry some weight but obviously not.
    It seems that the clock is turning back 20 years with all sorts of definitions of advice, scope to offer advice (sorry guidance) without liability, unqualified staff being able to sell this etc.

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