The recent Financial Advice Market Review issued by the FCA and the Treasury was an interesting summer read. Here we have yet another potential shake-up of the provision of financial advice.
I commented when the RDR was introduced that, although the intention was good, millions of those in middle Britain would no longer be able to afford financial advice due to adviser charging. I also predicted the decline of banks offering limited advice, which still remains the position today, contributing to the huge advice gap.
We are now in the situation where a lack of joined up thinking has resulted in a clamour for financial advice, particularly around the areas of pension freedoms, which were introduced without consultation, and auto-enrolment against a backdrop of a healthier British economy.
There are not enough financial advisers to go round. High net worth individuals get richer under quality advice, while the rest make do with press articles and limited guidance from wherever they can get it. It has been proven time and again that better long-term financial outcomes come when financial advice is provided. We really do need to bridge the advice gap.
Many will have to settle for guidance cleverly (and compliantly) badged up as advice. Take, for example, Hargreaves Lansdown’s £395 Retirement Planning Service proposition, which intends to fill the gap between Pension Wise and full financial advice.
More clarity is needed in the distinction between guidance, simplified advice and full advice. Many consumers think they have Financial Services Compensation Scheme and Financial Ombudsman Service protection when they receive guidance, which, of course, they do not. You can talk for hours with a person and can answer 99 per cent of their questions but, under the guidance rules, you cannot remotely touch on which provider someone could go to next.
A sensible point in the FAMR is that technology can provide cost effective, efficient and user-friendly advice. This is the only way in which the overall objectives can be met in today’s world. However, according to CTC actuary Nigel Chambers, it will require a change of mindset in both the approach of the regulators and also in the interpretation of their requirements by compliance departments.
I have been working in financial services for donkeys years and my thinking comes back time and again to the fact that some of the biggest, most trusted brands in the UK are the high street banks. With this in mind, I believe the banks should offer limited advice covering pensions freedom and auto-enrolment to their loyal customers.
Sadly, the FAMR report is not due out until next year’s Budget but it is important financial advisers comment to ensure the regulator’s thinking is realistic. With a new FCA chief executive in Tracey McDermott, who knows what the report may contain. May I suggest a rewrite of some of the RDR requirements?
Kim North is managing director at Technology and Technical