It would seem our industry is getting into a high state of excitement at the prospect of the Financial Advice Market Review, expecting it to water down regulation and make life easier. All I can say is be careful for what you wish for.
My take is quite the contrary. To quote ex-FSA retail head David Severn: “Some would like a return to the Wild West when firms sold shed loads of unsuitable products to benefit themselves”. This whole proposition seems to be an open door to the bancassurers once again.
Much of the review is predicated on what the regulator terms the advice gap. For the 30 years that I have been in financial services, it has been the norm that providers and life companies put a spin on things in order to wind up advisers to go forth and flog as much of their products as possible. This of course has involved the advisers carrying the can when things went wrong and the providers’ trousering the profits.
There are complaints about the perceived “hurdles to entry” for new advice firms. Yet it is the providers that would like to see legions of advisers. They still have a pre-RDR mindset in that they want advice firms to be the drones that shift their products. They still have not cottoned on to the idea that advisers now give advice. The client pays whether or not the advice is taken. If it is and there is a product involved, this is arranged for free with an ongoing funds under management charge.
The Treasury paper on the advice review runs to the usual garrulous 43 pages and contains some 41 questions. Most people would agree regulatory costs could well do with being reduced, but as far as the advice gap is concerned, how on earth do you provide advice for people with no money, or with very little money?
Indeed, should advisers be involved in this segment at all? Do people in this segment even want advice? What this segment of the public actually need is help to reduce their debt.
Treasury economic secretary Harriett Baldwin promises the review will deliver high quality advice. But it seems to have escaped her notice that high quality advice costs money.
For those who are at the lower end of the asset and income scale, the Treasury and the FCA are putting robo-advice centre stage.
Yet much of this assumes that these people are keen to obtain some sort of financial input and that they will sit at their computers and diligently go through all the online process to invest money they have not got. The most sensible course of action for them would be to build up some sort of cash reserve, and how many advisers would be happy to work on that basis?
I cannot understand why advisers would want to work in these segments. This is the “pile it high, sell it cheap” type of operation for which most advisers do not have the critical mass. Much better to leave this to the Hargreaves Lansdowns of this world.
It is true that the RDR was an effort with large holes in it. FCA senior technical manager Rory Percival has been quoted as saying “thank God for the RDR”, but I would like to see it properly applied. This means no exceptions for commission and no loopholes. I never understood the rationale for paying commission on annuities or indeed for paying commission on life assurance.
My dream scenario would be that the review would result in advice becoming a monopoly for advisers in the same way as law is a monopoly for solicitors, audit and accountancy is a monopoly for accountants and medicine for doctors. I have never understood the logic of having all these public guidance and advice organisations at huge cost when under the RDR it has been assumed the advice community is now professional and has high integrity.
If this is the case, why can’t the Government just issue a pre-paid coupon for those who wish to seek advice from an IFA? Wiser people than me can work out that this would probably be significantly less expensive than all these quangos.
So before you get excited and start waving flags for this review, just bear in mind the Government probably does not have advisers in the forefront of their deliberations.
Harry Katz is former principal at Norwest Consultants