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FCA: We are alert to RDR advice gap concerns and want your solutions

FCA chairman John Griffith-Jones says the regulator is monitoring the post-RDR advice gap “extremely closely” and recognises industry concerns over its impact.

Speaking at the Wealth Management Association conference in London this morning, Griffith-Jones said he was looking to the industry to provide advice gap solutions.

Last month FCA chief executive Martin Wheatley said he had “concerns” over the advice gap and the Treasury select committee is considering an inquiry into its impact next year.

Griffith-Jones said: “Clearly there has been a concern of the impact even if the nature of wealth management revenue streams has had slightly less impact than other areas of the industry. I would argue that what we have now is very clearly an improvement over what we had before.

“Yes, there may be side effects or unintended consequences and over the coming months we at the FCA will monitor developments in the market extremely closely. In particular we are alert to the advice gap issue and actually very interested to see where you, as part of a very competitive market place, go for new solutions that might meet the advice gap customer needs.”

Griffith-Jones also explained the FCA’s continued interest in the suitability of advice and execution-only and how to distinguish between the two.

The FCA conducted a thematic review into the suitability of wealth management advice last year, resulting in a £412,000 fine for Ashcourt Rowan last November 2012 and £3.1m for JP Morgan in May this year.

He said: “We find questions from industry very regularly over advice or execution-only and where one begins and the other ends. As you would expect these kind of details are very firmly on the FCA radar but the point remains essentially unchanged: We expect the sector to arrange investment portfolios that meet the needs and circumstances of its clients.

“The key to proving this to the regulator and clients is some form of documentation. Not, I hasten to add, documentation for its own sake but as a tool to safeguard the treatment of customers suitably and indeed yourselves should things go wrong.

“The thematic work we have done suggests there is still some room for some improvement in this area. Suitability, the idea of putting the customer at the heart of your business, will remain a live issue for us going forward.”

Griffith-Jones also called for continued focus on anti-money laundering, to restore London as a safe and appropriate place to do wealth management business.

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There are 18 comments at the moment, we would love to hear your opinion too.

  1. “Yes, there may be side effects or unintended consequences and over the coming months we at the FCA will monitor developments in the market extremely closely. In particular we are alert to the advice gap issue and actually very interested to see where you, as part of a very competitive market place, go for new solutions that might meet the advice gap customer needs.”

    Many of the unintended consequences, as Griffith-Jones put’s it, were quite avoidable and were in many cases forewarned consequences. Now would be a good time for some meaningful listening and learning on the part of the regulator to avoid, not an advice gap, but an advice chasm.

  2. Solutions ? Accept and understand that the vast majority of “advisers” “sell” products first and foremost – advice is not being given without a product sale in most cases.

    Accept and understand that Q level 3 is sufficient for those who sell Regulated products and Q level 6 ought to be the minimum for those who promote themselves as “Independent Financial Advisers”.

    Regulate the products sold by the majority and the advice by the minority who deal in complex advice. Finally bring back commission.

    You created this mess and I have little doubt that you will do none of the above so don’t expect anything to get better anytime soon.

  3. The solution.

    When you do something stupid knowing that it is stupid and you carry on doing it then;

    a) you are stupid

    b) take advice and backtrack before you are hit with a knighthood

    c) you are playing games and toying with semantics

  4. Fix the distortion in the market that has been created by RDR with commission being allowed to continue for execution only business.

    Right now most of the clients we see are told ‘we can sort your annuity for free as the product provider pay us. An IFA will need to charge you separately’. Heard that same line from clients dozens of times. They are not impressed when they realise they have been mislead with a half truth.

    Also on the execution only side where needs to be a more stringent approach. Having somebody with a million pound pension pot and another that qualified for flexible Drawdown – nobody pointed out they should get some sort of advice as there are other option suitable other than annuity purchase – is plain wrong. It only reinforces the fact that with the public that FS is a dirty word.

  5. Dear Mr Griffiths-Jones

    A good starting point for you to get ‘solutions’ would be read the numerous submissions made to both you (FSA) and the TSC and act on them.

    You will no doubt be surprised to learn that ALL the problems with RDR and the resulting ‘consumer outcomes’ were predicted.

    You may wish to enquire as to why people within your organisation did not act upon this readily available information (althouth I accept that the majority have ‘movedon to pastures new’. Indeed links to the submissions sent to the TSC are widely available as are no doubt those sent to the FSA or did they get shredded when they morphed into FCA ?

    In any event the clues are there !

  6. The FSA MK2 was warned of all the unintended consequences BEFORE RDR. I suggest they just go back to the original discussion lpapers and re-read the responses as they didn’t listen last time and so why would we waste our breath telling them again. Time for us to get on with running OUR businesses and servicing our clients and TELLING them what we HAVE done after the event.

    I tried to have a meaningful discussion with the FSA 4 years ago about consumer responsibilities, but they are still trying to dictate and play politics rather than play by any agreed rules including there own.

    Either I am a shyster or someone else is and looking up the definition is on wikipedia is worthwhile!

  7. I see Derek beat me to it 🙂 There are none so deaf as those who will not listen. plus whose earare we supposed to whisper in when the earskeep moving. I had a teleconference with Amanda Bowe pre RDR on the issue, what happened to her? Peter Smith, Hector Sants ? Musical chairs or re-arranfing the chairs o. the tictanic whilst making sure you’ve reserved your golden lifeboat.

  8. I haven’t done one bit of regular premium business (excluding top ups and re-directions) for the past 10 mths ?
    And after talking to some of my peers this seams to the same for them

    I my view the saving/pension/protection or any other gap is not solved by and large by single premium business, RDR was always going to kill off the people who want ! “no” need to save on a regular basis.

    It just to damn expensive to transact as an adviser and for the client to pay the fee, the mindless end of paperwork, fees, levies and over regulation is just mind boggling ?

    I forget who it was now but who was it at the FSA who said “we don’t think advisers will stop transacting small regular premiums into ISA’s and pensions” (or words to that effect)
    The only statement of fact in that statement is “we don’t think” period

  9. @DH – I know what you mean I have just had an existing client who is 65 and still working tell email’ me that he’d like,e to put a lump sum of £2,500 I to his pension and a further£1k per month. Easy I think and so does he until we think about is that advised sale or execution only since I’d advise he puts it in his wrap and then moves it as lumps from the ISA to his pension as he feels comfortable with conversion of capital to future income. The advice is simple, documenting it to the satisfaction of FCA is the costly problem.

  10. Dear Mr Griffith-Jones

    After reading the forgoing posts it will not surprise my peers that I take a somewhat different view.

    1. Advisers who say they were involved in the ‘mass market’ were either:
    a) Not making much of a living
    b) While not exactly ripping clients off they weren’t actually doing them any great favours
    c) The woes concerning regular premium business for pensions and investments rather reflect b) above. The Life Offices love this sort of business as it is good for cash flow and promotes loyalty and inertia. The charging structures were always disadvantageous to clients and the commission regime only made things worse.
    2. Regular premiums into ISAs? How many one wonders actually pay in £960 per month? And continue doing so year after year? Do they have a spread of managers and assets?
    3. Some of the comments contain a germ of reality. For the mass market – have regulated products. These can be sold by vertically integrated firms – so no charge from the seller, the income comes from the fund management. This can be sold via banks and direct sales forces (still qualified to Level 4)
    4. While you are at it please let’s have a completely level playing field. Stop the nonsense of execution only (I hope your present review is robust) and for those who wish to remain independent – stop commission on life assurance and mortgages (AKA Proc Fees). (Adviser charging can operate if necessary). And ensure that everyone advising the public on financial products and mortgages is qualified to level 4.
    5. Your definitions of Independence. This is where I think you have made a real mess. If an adviser can show that his advice is not prejudiced and that he/she charges fees across the board (see 4. Above) and is suitably qualified, then I don’t see why you then have to go any further. The current regime is confusing and impenetrable for clients (not to mention practitioners). Then when you have sorted this at least have the decency to police it robustly. In the old system too many were driving a coach and horses through the definitions and in fact little has changed. Those of us who are busting our backsides trying to remain independent are seeing precious little action on the part of the regulators to ensure that this is a protected title. Please let us stop the nonsense of titles such as impartial, whole of market life assurance salesman.

  11. @Harry, I am involved in the mass market and I would be making a much better living if I got to keep all my turnover. My turnover has been pretty constant iT is the fixed costs which are reducing my profit.

    My clients are not being ripped off, I am really quite cheap compared to those dealing mainly with the mass affluent and only one complaint in 15 years which didn’t get to FOS. My PI is actually quite low, despite the Keydata debacle.

    I good service at a reasonable price can be provided to the mass. market IF, but only if regulation is proportionate, which it is not at present. I would be happy with my profit if it was the majority of my turnover, but it is not, my expenses of being in business are larger than what I get to keep which is wrong for what should be a service with no stock of trade.

  12. Oh dear, having just read Harrys last line I am not sure he will agree with my post below.
    Before I do post, can I say Harry I am in the mass market arena, I did 200 transactions a year and make a very good living thanks. However on with the post.

    I Agree with Bones and DH above. I have yet to blot the copy book with regular premium savings this year and am really unlikely to do again for all the same reasons that have been said before.
    I did giggle when I read the part “I would argue that what we have now is very clearly an improvement over what we had before”. Exactly how is this a better place now than before? (Those academics out there please don’t bore everyone about we are better qualified – this does not wash any more. The exams were a total waste of time and money and have made not one iota of a difference to the vast majority out here who have been selling for years. Is there anyone out there who can honestly say that explain the broad money supply theory to clients regularly (or at all for that matter?). Let’s be honest for once, we are all sales people and the qualifications and RDR has not made us better sales people in any way shape or form. The way “advice” is being delivered has NOT changed one bit. The only thing that has changed is how the huge majority of us get paid for selling.
    We have less really experienced people who are selling, less people being sold to save for their future, there are fewer people who can afford to pay us to transact regular premium business for them so we don’t do it, we are constantly being hit with higher and higher fees so having to charge more just to stand still and therefore have even less people who are able to afford our services. It has become a very vicious circle. If this is his idea of being in a better place than before then god help us all.
    As far as solutions are concerned I think a good starting point would be for the FCA take some of their own advice and start to segment adviser community. Green, Amber or Red (or whatever category they want to use) according to the risk they pose to the investor and have appropriate levels regulation (service levels) for each along with increasing requirements to be able to document a compliant sale has been made. We pay them, therefore we are their customers and, as the customer always pays, the more they have to do for us, the more we should pay them for their services. Likewise the less they do for us the less we should have to pay.
    Examples could be:
    Green – Make it very quick, simple and easy to do business with these clients. Those who only sell simple products to solve simple needs and even give the generic names of these products – ISA PP to the self employed Unit trusts and bonds. Those that are in this category should have the dividend of very light touch regulation and make it really easy to transact business for a client. The paperwork to document suitability should not need to be any more than 4 pages (including all the personal detail, reasons for selling the product the funds, etc., etc. There should not need to be a 15 page suitability letter to prove why maximising a clients ISA is suitable or why a lump sum of £X into a PP is suitable. These are all simple products and should have simple compliance measures in place to prove a compliant sale has been conducted. Make it very easy
    Amber –Those who want to sell slightly more complex or risky products – ETF’s, Structured Products SIPP or SSAS etc. There should be more justification required to demonstrate how AND why these are suitable along with documentation as to why the client’s needs cannot be satisfied by the more simple products.
    Red – Those who want to advise/sell at the high-end or sophisticated end of the market. Film partnerships, EIS, UCIS, Occupational scheme transfers, holding client money etc should have greater supervision and intervention placed upon them. This should be the end of the market that has the highest regulatory burden placed upon it and pay the highest regulatory fees as they pose the greatest risk to clients. This is where 15, 20 + page reports need to be done as there is so much to put in there and the people who suitable for this type of business (or their accountants et al) are likely to get some value from these.
    Only those within the regulator who are knowledgeable / experienced enough to supervise on Amber and Red should do this and so they could have meaningful meetings with those on their own level. A specialism within the regulator if you like.
    Although simplistic in its format I would like to think that it would make sense to those who are in charge could see the benefit of this type of regulation. We have a very broken regulation machine currently and if it is not fixed soon the industry will be regulated out of existence.

    As always just my humble opinion (Smiley face)

  13. Glad you are looking for our advice. Just one suggestion, hire or recruit practitioners, with experience. Just a thought

  14. The first thing the regulator needs to sort out is: What is advice?

    It is clear that many IFA’s who choose to stick to a full advice process are being disadvantaged by companies acting as execution only models. The review that the FCA is carrying out into this area is well overdue.

    The advice gap is made worse by regulators in action and indeed unfair implementation of rules that seem to exempt execution only models. After all why is it that IFA’s seem to be burden by the cost of a full advice service and platforms such as Hargreaves Lansdown can carry on giving what it calls clients case study scenarios and make millions out of execution only.

    I noticed that Martin Lewis in a recent BBC 5 program said that clients shouldn’t act upon his “advice” without taking into consideration whether it’s right for them. Could it be that he is becoming concerned about the FCA’s review into execution only for information only services.

    As I’ve mentioned many times before how can a journalist run a website that gives chapter and verse on pensions without holding a licence for pensions. If an IFA can become heavily fined for running a financial promotion which does not fit FCA rules how can information only service get away entirely from complying with FCA marketing rules.

    If we want to talk about the advice gap talk about fairness first not only to the consumer that also to those who operate as professionals.

    I firmly believe that if the regulator was to apply a fair standard approach to advice backed up with authorisation and then numbers financial advisers would increase. We also need to simplify the paperwork for advice and the differential between simplified advice and normal advice is ludicrous. The answer to the advice gap is obvious simplify the paperwork and standardise the advice process backed up with authorisation.

    In reality execution only should only be a small percentage of all business written as the financial literacy of the average British consumer is low. I wonder how many individuals that have invested in Hargreaves Lansdown for example believe that they have received financial advice?

    That would be an interesting survey to carry out!

  15. @ Peter Herd – “In reality execution only should only be a small percentage of all business written” an oversimplification. When it comes to Equity based collective ISA I would question your view. In many ways the great majority of ISA investors might do better not to pay for any advice at all. Advice does have a value but is it really worth between 0.5% pa and 1% pa ? Most advisers are still recommending the usual suspects when it comes to platforms – again more expense.

    my overall conclusion is that the average none HNW investor could do worse than pick a run of the mill active multi-asset fund from one of the D2C platforms ( my preference would be ATS – charging £48 pa rather than the more expensive HL) and go ex-only, saving advice and platform costs.

    Even though we probably disagree on this ? could you explain how and why I should be told that my financial literacy is too low to allow me to think and act for myself ? would I have to pass a test to be allowed to do ex-only ? sign a disclaimer ?

    If advice is to be promoted then it must justify itself and not try to prevent investors from acting as they see fit – even if some do get it wrong.

  16. I agree with Peter again. It is becoming a habit.

  17. One word Mr Griffith-Jones ~ SIMPLIFY.

    The advice process needs to be boiled down to just four basic precepts ~ Proposition, Costs, Risks and Tax.

    The reporting process needs to boiled down to just six basic categories ~ What classes of business have you transacted over the past 12 (not 6) months (and how much of each)? What was your average charge per case? Have you had any complaints? On how many did you pay compensation? How many were referred to the FOS and How many of those referred cases went against you? Is your business still solvent?

    Stop regulating everything by hindsight.

    Stop trying to micro-manage every aspect of everything that intermediaries are trying to do for their clients in the pursuit of a Utopian world of perfect outcomes for every transaction. It can’t be done.

    Act in accordance with the Statutory Code of Practice For Regulators.

    Listen to what the industry is trying to tell you (and stop these phoney consultations).

    Start accepting responsibility for your own failures and oversights instead of dumping the blame for them all at the door of the IFA community.

    Act in a manner that’s clear, fair and not misleading (as you’re so fond of demanding of everyone else).

    Stop making stupid and mendacious claims such as “We don’t want to (over-)burden IFA’s with compliance”

    There are your starters for 10.

  18. “Looking to the industry to provide advice gap solutions”
    What a laugh! Since when was the Regulator interested in what we did, thought or said.

    They now (finally) recognize the hole (chasm) THEY have created. Yes the Regulator! They never listened to us before and now have the temerity to ask us “Our opinions” Godamn No!. They created the mess so they must sort it out and learn by their OWN mistakes.

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