This year looks to be another exciting one for the advice sector; full of change, challenge and opportunity. As part of that picture, the FCA released its latest Policy Statement on the Financial Advice Market Review early last month.
While not a great deal has changed from the proposals made in CP17/28, it nevertheless makes interesting reading, as the regulator’s comments on the feedback received from firms indicates how aligned and supportive they are as a whole with the proposals.
It is worth remembering FAMR was designed to look at regulatory barriers in the advice sector and how to overcome them. The hope is that this will enable more firms to enter and plug the advice gap, as well as open up the non-advised part of the market for authorised firms in a way that allows them to be comfortable with the regulatory risk sitting around such models.
Some of the most interesting points arising from the Policy Statement are as follows:
1. Firms still appear to be a little wary of providing non-advised guidance and having certainty over what standard they will be held to by the Financial Ombudsman Service if complaints are subsequently made by clients. There is a leap of faith issue here: the FCA has made it clear firms giving non-advised guidance will not be held to the same standards as those giving personal recommendations. However, it also states the FOS will be able to decide such complaints based on what is “fair and reasonable” – and it is that phrase which can strike fear, as it is vague and open to interpretation.
One has to hope the FCA will work closely with the FOS to ensure the correct standards are applied. If the FOS does not respect the dividing line between guidance and advice, and the different standards that should apply, the objectives of FAMR will not be achieved. While the FCA and FOS are separate organisations, they need to be consistent on this issue to bring confidence to the market.
2. There was also some feedback from firms who considered that individuals giving guidance should be subject to the same training and competence requirements (including qualifications) as those who give advice. The FCA has, correctly in my view, rejected that assertion.
Given that FAMR is designed to remove regulatory barriers in this market, to apply the same T&C requirements to non-advising staff would go against that objective. Firms still have overriding duties to ensure staff are competent for the role they perform and to have appropriate systems in place to ensure it complies with its regulatory obligations. It is appropriate the FCA allows firms to determine the correct approach on guidance without imposing over burdensome, specific requirements in this area.
3. The FCA’s Advice Unit will clearly have an important role to play in giving firms the confidence to bring new propositions to market. It appears to have made a good start with the case studies published, which generated a significant amount of feedback.
Several respondents asked if the FCA could be more prescriptive on what information is necessary to collect about a client’s financial objectives if they do not articulate a specific goal. I will probably get shot down for this, but the FCA – again, correctly in my view – indicated it would not be that prescriptive and that it was for firms to determine, in any particular circumstances, what information may be relevant to the personal recommendations being given.
It would not be helpful or even practical for the FCA to try to prescribe exactly what information is relevant in particular circumstances. Qualified and experienced advisers should be confident enough to judge what information is relevant for any particular client.
4. Finally, the FCA returned to the issue of insistent clients. I have written about this before but the guidance issued in this area is helpful and reasonably clear: any insistent client process must start with the client going through a full advice process that ends with a personal recommendation subsequently rejected by the client. If any firm tries to circumvent that process, then regulatory bear traps await.
The challenge, of course, is whether a client will agree to pay for that process when they think they already know what they want to do at the outset. The only way to avoid all risk here is not to deal with insistent clients. That said, there is at least some clarity on how to deal with such clients if you wish to do so.
I am feeling very positive about the potential for developments in the advice market this year. Even the most cynical of advisers should be able to recognise the FCA is making some genuine and useful attempts to encourage innovation by addressing historical areas of difficulty. Let’s see how the rest of the year pans out.
Alan Hughes is partner at Foot Anstey LLP