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MM leader: Do we really need to reinvent the wheel on advice costs?

Natalie Holt website

When you think of all the labels attached to advice in recent years, it is no wonder we need a review of the market – if only to cut down on all the jargon. We have had basic advice, basic advice plus, restricted and independent advice, simplified advice, robo-advice, and of course, full regulated advice.

Yet for all the wordplay, regulators and policymakers have not come close to designing a regime that manages the holy grail of an innovative, accessible advice market which provides adequate consumer protection and does not cost the earth.

The Financial Advice Market Review is one attempt to solve this conundrum. It is the Government’s prerogative to put out a consultation with no detail about what is proposed, and that is exactly what has happened on plans to create a regulatory “safe harbour”.

The industry has sought to fill in the blanks on how a regulatory carve-out would work in practice, and indeed whether it can work at all.

The thinking goes that by relaxing the rules for simple transactions, the cost burden to both firms and consumers could be lowered and therefore the advice gap could be bridged somewhat.

Of course, this would represent a dramatic change in stance from a regulator that has always sworn advice has to comply with RDR rules and must carry the uncapped liability that goes with it.

The Government is clear it wants to see a safe harbour introduced, but the FCA less so. Without wanting to break with tradition, there is some degree of sympathy for the regulator here.

On the one hand, limiting liabilities means reducing consumer protection at a time when the lack of mass market advice brought about by the RDR is compounded by the need for advice triggered by pension freedoms.

On the other hand, the current situation is untenable. Advisers are at breaking point in trying to cover never-ending regulatory costs, and with fewer clients to show for it.

As Apfa director general Chris Hannant points out, the way to deliver mass market advice might not be about reinventing the wheel but tackling the known crunch points, such as FSCS levies and the lack of a long-stop.

Advisers are crying out for way to serve the lower end of the market. If there is a way to achieve this without opening the floodgates to the ‘stack ‘em high, sell ‘em cheap’ philosophy of the banks and insurers, I am all for it.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Why don’t we just have one label called “financial advice” and maybe have just say five absolute rules? (rather than the hundreds of regulatory rules and guidance)
    The consumer would be better protected and we could reduce the scale and cost of the regulator at the same time.
    Won’t happen will it?!

  2. “The Government is clear it wants to see a safe harbour introduced, but the FCA less so.” Bit of an understatement. Linda Woodhall, on behalf of the FCA, has declared that there’ll be “no loosening of regulation” on her watch, though clearly this is direct conflict with what the government wants. The FCA has made vague waffly noises about a simplified/streamlined advice framework but has come up with nothing nor listened to anything that anyone else has put forward.

    To Chris Hannant’s view on this, I would add that, instead of an exhaustive comparison for every client of every potentially suitable product available, a simplified advice process need be no more complicated than Proposition, Costs, Risks and Tax with a brief summary as to suitability. It wouldn’t be perfect, of course (what is?) but it would be a lot more affordable, consume a lot less time and paper and would surely go a long way towards closing the advice gap about which the government is clearly concerned. Sadly, pragmatism just doesn’t feature in the FCA’s thinking. Perfection at all costs, that increasingly elusive pot of gold at the end of the rainbow, is the objective from which the FCA will fight tooth and nail not to be diverted. But the FCA’s position is one of stubborn entrenchment and it refuses to countenance the reality that this approach just isn’t working, is it?

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