The Financial Advice Market Review published its recommendations a year ago and we are taking this opportunity to reflect on the significant progress already made and, importantly, the work still to be done.
FAMR was launched jointly by the Treasury and the FCA in August 2015 amid concerns that the advice market was not working well for consumers. The review concluded that much could be done to help deliver affordable and accessible advice and guidance to everyone, at all stages of their lives.
In particular, FAMR recognised that technology can play a significant role in driving down costs and enabling firms to engage with consumers more effectively. It recommended that the FCA should set up a dedicated team to help firms develop mass-market automated advice models.
Smoothing the path to advice
We set up our Advice Unit in May 2016. It provides regulatory feedback and support to such firms. It is currently working with 10 firms with the potential to reach large numbers of consumers and will shortly start working with a further cohort. We have also published proposed guidance on streamlined advice, which we hope will also be helpful to firms in this space. It proposes practical guidance for firms looking to develop streamlined models and gives real-life examples of both good and bad practice.
As well as addressing cost factors, the review also recognised the importance of tackling barriers which prevent or discourage consumers from seeking out advice and other forms of support. Many people are disengaged, unsure how to find good advice or lack confidence with financial decisions. FAMR proposed a number of measures to help consumers engage more effectively with advice and guidance.
Much of this work has been supported through the work of the financial advice working group (a stakeholder group set up to support the FAMR work), which has created a guide for employers to support their employees’ financial well-being, as well as developing a set of “rules of thumb” and principles for nudges that can prompt people to take action to improve their financial well-being.
Politicians on board
The Government has also taken action, introducing changes to the regulatory perimeter designed to assist firms working with customers to give more help without inadvertently crossing the boundary into regulated advice. Measures have also been introduced to help consumers to pay the upfront cost of pension advice: people are now able to withdraw £500 from their pension pot at any age to pay for retirement advice and a £500 tax exemption for employer arranged pension advice is also available.
These actions form part of a wider programme which over time will deliver the FAMR objectives. The FCA has also been working together with the Treasury to develop indicators to provide an overview of the advice market, reflect the FAMR success measures, and establish a baseline to help monitor developments as the FAMR recommendations are implemented.
They will also serve as a benchmark against which the FAMR outcomes will be compared in future years. The indicators will be published by June.
Taken together, the FAMR work has the potential to really improve the affordability and accessibility of advice and guidance. However, this can only be achieved if there is continued commitment on all sides – not only from regulators and government, but also employers, consumer groups and the financial services industry.
Advisers (large and small), pension providers and investment firms, who deal with consumers on a daily basis, have a real opportunity to make the most of the momentum behind FAMR and play their part in making the market work better for consumers.
Christopher Woolard is executive director of strategy and competition at the FCA