The FCA has published a speech made by acting chief executive Tracey McDermott at a recent conference I attended on the Financial Advice Market Review. The speech, entitled The regulation of Advice – Recommendations post-FAMR, can be found on its website.
Coincidentally, it was announced McDermott would be leaving the regulator just before she stepped up to speak. The general feeling among the delegates was one of disappointment. It would be an exaggeration to say there was a mass outpouring of love for the incumbent but it was certainly felt she had done a pretty reasonable job and the FCA had made progress under her stewardship.
But back to the FAMR and the speech itself. The aims of the review cannot really be argued with. There is clearly an advice gap. It could be said much of the work could have started at the same time as the RDR was first proposed, or shortly thereafter, but there is little point in looking back now.
Speaking to my IFA clients, many have been reluctant to enter the “focused advice” market (that is, looking only at a discrete part of a client’s financial planning needs) as they believe the regulatory landscape makes it too risky. Focused advice is not clearly defined by the FCA and the concern is that, after the event, a firm will be held to the standard of a full financial planning process.
Consequently, one of the most helpful parts of the FAMR is it recommends developing a clear framework that allows firms to give focused advice (now renamed “streamlined advice”) with confidence. If the regulator can genuinely deliver on that, it could make a huge difference to the market, particularly if it can facilitate the automation of such streamlined advice. It is also proposing to build such a framework to enable firms to more easily deliver guidance to clients without making a personal recommendation (that is, no advice at all).
One delegate at the conference told me their firm had attempted to map out the number of questions that would need to be asked if they wanted to automate a full advice process. It was over 250. Very few potential clients would make it to the end of that process but the model could work if it could be broken down into more manageable chunks of streamlined advice on discrete areas.
Another interesting view held by many of the speakers and delegates was fully automated advice may not be the answer at all in most cases, and will be most useful when sitting alongside a process that allows the client access to a real person – be that on the phone or face to face. The view seems to be neither the market nor the current regulatory landscape are ready for full automation in most cases.
The above are some of the proposed solutions to the “supply” question of how firms can profitably and compliantly provide advice and/or guidance to a wider market. The other issue the review seeks to grapple with is “demand”.
Currently, the mass population is largely disengaged when it comes to financial advice. With this in mind, there is a danger the industry could build an efficient machine to deliver advice and then find there are no willing buyers. The demand question is much more difficult to address.
One of the main thrusts in the FAMR’s proposal to address supply is through employers. Again, employers have indicated they shy away from assisting employees as they do not wish to stray into areas of regulated advice. The FCA is proposing a number of measures in this area and with the rollout of automatic enrolment, it is certainly true employers are in a unique position to engage with a mass of people that would not normally seek financial advice.
How many employers are ready and willing to spend time and resource on this, however, remains to be seen. It does feel a little like putting most of the eggs in the employer basket. In the long term, I would suggest earlier stage broad-based financial education might be a more effective way of encouraging people to engage with their own financial affairs.
Overall, then, the FAMR final report looks like a very mixed bag. There are some constructive proposals around guidance and streamlined advice, which, if delivered quickly and effectively, could provide a catalyst to opening up the advice market in a spectacular way. Saying that, the demand-side proposals look less compelling and there are also a disappointing number of recommendations that involve little more than a further “review” or “taskforce” to look at a particular area. The FCA will have to move quickly and show real progress in many of these areas if the FAMR is to make a real difference. Watch this space.
Alan Hughes is partner at Foot Anstey LLP