Last week I was invited to sit on the panel for a debate about the Financial Advice Market Review. The panel was an interesting group of eminent industry people – and me (I quipped on Twitter before that I was the only one that I had not heard of.)
In the run-up to the event I thought a bit more about this. I spend a lot of time dealing with advisers, and am lucky enough to speak on pensions and retirement issues, and I have been in this industry for more years than I would care to admit to.
Like it or not, the RDR came and went and it had a big effect on our industry. I cannot help but think that having a known deadline of 31 December 2012 helped to focus the time and effort involved in getting there. So would it not make sense to set a reasonable but definable deadline for FAMR?
As with the actual FCA report, it is perhaps best to divide discussion into three headings – affordability, accessibility and liability.
The RDR brought in a known level of professional qualification which was a good thing. The other side of the coin was that a lot of older advisers took their chance to retire/sell up. So, as predicted, we have fewer advisers than we did have prior to 2013.
With a higher level of qualification and the need to create viable business models, we have seen a move away from an intermediation of products, to an advisory and planning model based on the provision of advice as the product, and the advice being based on a holistic view of the client’s circumstances. This move has also been precipitated by concerns about liability and consumer redress, and the need to make sure that any advice which forms part of a financial plan is given on the basis that it cannot be taken out of context, and therefore cause some liability.
There is no doubt that the possibility of “unforeseen” liability is on the minds of many of the advisers that I talk to.
They give advice and it is implemented, yet years later the Financial Ombudsman Service takes a view of what has happened and puts the liability at the door of the adviser.
FAMR recommends developing the role of the FOS with a view to transparency and visibility of the decision-making process. There is also commitment to a review of the Financial Services Compensation Scheme levy, possibly using a risk-based approach and also looking at the professional indemnity market for smaller firms.
The whole liability thing has a knock-on effect on affordability. Many advisers factor in a payment for future liability and costs and, as a result, many potential customers feel that financial planning and advice is too expensive.
When you talk to a lot of advisers there is not too much wrong with the world – they offer a product at a price and they have all the demand they can cope with.
For me the problem exists under the other two headings – perceived affordability and accessibility from the demand side.
The first and most important question to answer is whether people understand what financial planning is, what benefits it can bring and, if so, how much they are prepared to pay for such advice?
FAMR suggests a number of external initiatives, from nudges and information sheets, to simplified suitability reports, the ubiquitous pension dashboard and even the ability to cash in a small amount of fund each year (£500) to pay for advice.
If there is a gap between demand and supply, could there be opportunities to offer a new service or a lower cost version of the full advice service to fill the gap?
Could robo-advice assist in information gathering, or should look at changing advice definitions altogether? For example, we have had talk of focused advice, simplified advice and even changing the definition of regulated advice itself alongside this continued work on guidance.
Guidance is all well and good, but guidance means taking your own responsibility for accuracy and if anything goes wrong. So guidance should then nudge to the concept of paid advice, as with this comes some liability, objectivity and professionalism.
FAMR is a good thing, but perhaps needs a few guiding principles:
- Let’s make sure we do not damage what we have.
- The use of technology could be key in bringing down costs.
- A hard win would seem to be achieving clarity around the FOS and how it reaches decisions – let’s not shy away from addressing hard subjects.
- Let’s ensure sure we focus from the demand side not just the supply side
- Finally, like RDR, a key date of implementation/completion would assist in focusing the mind.
Mike Morrison is head of platform technical at AJ Bell