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Liz Field: FCA must make providing advice more affordable

Liz FieldIn early May, the FCA announced a further review of the RDR and Financial Advice Market Review (the third since 2015) accompanied by a Call for Input.

We support the general consensus that the introduction of RDR, in particular, has had a positive impact on standards of professionalism.

However, it has also had the effect of slowing the number of new advisers operating within the industry and fewer people accessing advice. In other words, an advice gap.

Another contributor to this gap has been the increasing cost of advice in order to cover regulatory and staff costs.

The cost of regulation has, in some areas, been attributed to ‘the cost of doing business well’. However, large numbers of firms struggle to understand the value add for the client with respect to the level of disclosures they have to make, the time it incurs, and the cost ultimately passed on to the client.

More broadly, there is significant cost for smaller firms and new entrants to doing business well, borne out of a need to buy in external compliance support. We also have anecdotal evidence of clients getting agitated about the amount of paperwork that is generated.

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With this in mind, we would encourage the FCA to consider how it can assess and monitor the way regulatory initiatives impact directly on the cost of compliance for firms, and its impact on the advice market.

The role of advice has become increasingly critical over recent years. Indeed, many pieces of independent research point to the value of advice in growing savings and investments compared to not taking it.

As we live longer and spend more time out of work, the role of financial planning and the management of the wealth we do have will become even more important – and for that we need a thriving market with many more advisers than we have today.

As consumer needs, technological advancement and social norms change, the service offering for clients will have to adapt drastically.
This is a business of long-term planning and it would be naive to assume things do not change. However, this is also a business focused on outcomes, and regulation should reflect this.

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The industry is not a homogenous entity. There are no singular processes any firm can undertake in order to streamline its regulatory obligations.
There is also a broader issue of an erosion of trust exacerbated by individuals and firms – regulated or not – that have a damaging effect on the reputation of the sector.

If the FCA is serious about closing the advice gap, making advice more affordable and encouraging more people into this market, it needs to consider what role it can play in overseeing a regulatory landscape and implementing a supervisory framework that is effective in stamping out these practices. Its recent tough stance on defined benefit transfers is, as an example, a welcome move.

Liz Field is chief executive at Pimfa


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Duncan Gafney 4th July 2019 at 1:22 pm

    Until the FCA come to the conclusion that saving money is far less risky than borrowing it, nothing will change.

    Want to save £50pm and want some advice about which option is best and the likely fee will be £1,000 plus several hours of sit down with an adviser.

    Want to borrow a couple of grand on a credit card, apply online and get the money in 30 mins.

    Then they wonder why there is an “advice gap”.

    You honestly couldn’t make this stuff up.

    • You’ve missed the crux of the matter – risk. In any financial transaction, the risk is with the lender. Banks are happy to risk a few grand on an unsecured loan, but what about, say, £200k? Then they’re looking for the borrower to provide collateral, be it a house or other security. It that goes bad, then there’s the full force of the legal system, all the way to bankruptcy proceedings, to help recover the debt.
      Now turn that around and apply it to investing. While £50 a month is well within the FSCS limits, what security does your client have for lending out their £200k life savings or pension pot? The key reason for using an FA is to obtain some sort of protection should things go awry, so it’s hardly surprising the process of delivering that protection is onerous – nobody wants to being picking up the pieces when, in 20 years time, it becomes apparent that the wrong advice was given.

      • Crux for whom? As it stands, looking at it from the clients perspective, with investing the risk for a £50pm investment is treated the same as a £200k investment and with it go the costs.

        There are risks with lending too, customers can quickly get in financial difficulties which affects their lives, often quite dramatically. Duncan’s point is well made in that borrowing is easy, saving is much harder. Surely it should be the other way round for small amounts into regulated investments?

  2. Never going to happen and the costs for advice are set to go though the roof and the advice cap bigger than the ever before.

    Unintended consequences are hitting hard, the regulator, FOS, FSCS all working outside the law, which has now created an environment which means advisers cannot defend any advice effectively, even when its correct and PI Insurers cannot calculate the liabilities.

    Agree with Duncan totally.

  3. Trevor Harrington 4th July 2019 at 5:16 pm

    What we could really do with, is to have an Adviser payment system where the advice results in a transaction and the Adviser gets paid …

    We could also allow for the fact that some clients taking advice, and effecting a transaction, might pay a little bit more to compensate the Adviser for those clients who do not follow their advice.

    Provided we could also have a regulator who knows what they are doing, and who could oversee the profession effectively, and ensure that transactions are not charged excessively, possibly through some sort of disclosure system, then we would have a secure system of advice availability for all, and no “advice gap” what so ever.

    Of course, this simply (and it really is simple) depends on us having a Regulator who knows what they are doing … !

    Errrrm … hang on minute … Ohhhh yes … now I see it …

  4. Julian Stevens 5th July 2019 at 9:29 am

    A waste of typing time. Why not just bypass such wishful platitudes and cut to the chase? The FCA isn’t listening, doesn’t want to and won’t unless and until forced to by an external body such as the TSC.

  5. George Kaplan 5th July 2019 at 1:50 pm

    I’m not sure the definition of advice gap is helpful (fewer people accessing advice) even if the statistic is correct (which may or may not be the case). Nor does this say exactly what advice is needed for – the £50/month saving, the £50,000 inheritance, the £200,00 pension transfer.
    But the suggestion is that the cost needs to come down (for all of the above?). Maybe so – but what is a reasonable price for advice, that makes sense to both the consumer and the adviser? Or, put it another way, how much does the price have to come down to close the gap? And if the price does come down, what does that do to the supply of advisers – which as far as I can se has risen markedly in the last six years, perhaps reflecting the substantial rise in turnover and profitability in the sector.

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