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Nic Cicutti: FAMR ignores simple fact consumers do not trust advisers

Nic Cicutti

Whenever I tell people I was born in Rome and lived the first 10 years of my life in Italy there is always someone who professes surprise at the fact I have somehow managed to master the odd word of English, let alone that I make a living writing in the language.

Of course, living in this country for several decades has helped. But if I am honest, the biggest aid to my learning English has always been an insatiable appetite for reading.

One novel I came back to recently, restacking our shelves after a couple of years when our books were in storage, was Kazuo Ishiguro’s Remains Of The Day.

Many will be familiar with the story: Stevens the butler fails to understand – and therefore to act on – his love for a housekeeper when he was working with her many years before. He travels to see her, only to discover he is too late: she is now happily married to someone else.

Ishiguro writes of Stevens’ inability to recognise and act on his feelings at the time. “While it is all very well to talk of ‘turning points’, one can surely only recognise such moments in retrospect.

“Naturally, when one looks back to such instances today, they may indeed take the appearance of being crucial, precious moments in one’s life; but of course, at the time, this was not the impression one had.”

Like Ishiguro’s main character, there may come a point when we will see the Financial Advice Market Review report published last week as a turning point in the efforts to reduce and eventually do away with the so-called advice gap affecting millions of UK consumers.

That really needs to be the case because, judging by the lukewarm response to the 85-page report’s rather vague proposals on how to make quality advice available to the general public, that is certainly not what most industry observers are thinking at the moment.

The truth is while many of the report’s ideas are interesting and may or may not improve the provision of advice to a cohort of consumers who are unable to afford it, none of them are the silver bullet advisers themselves were hoping would emerge from the review.

Yes, the FAMR is recommending a far greater level of automated advice as a way of delivering a cheaper– but still high-quality – service to consumers.

Its report states “new technologies can play a major role in driving down the costs of supplying advice and enabling firms to engage with customers more effectively”.

But we all knew that already: I have been banging on about it for years. And Ian McKenna has been doing so for even longer and with a far greater degree of expert knowledge and insight.

It is also true that when it comes to the accessibility of advice “the workplace represents an opportunity to help more people access financial guidance and increase take-up of financial advice”.

“It may be that the FAMR was the FCA’s way of telling the industry that there are already lots of things they can do within the existing rules”

But we knew that too. Somehow, the FAMR recommendation that “the Financial Advice Working Group should work with employers to develop and promote a guide to the top 10 ways to support employees’ financial health” as well as creating a new factsheet setting out the help employers and pension trustees can provide on financial matters does not really cut the mustard.

As for the other proposals, including “consulting on guidance to provide clarity on the standard types of information required as part of the fact-find process” or “the FCA and industry should continue to work together with the aim of bringing about improvements to suitability reports”, these do not sound very radical either.

The problem is while the FAMR seems to consist of lots of little ideas that will undoubtedly help streamline the process of giving advice as well as help address issues such as the occasional lack of clarity from the Financial Ombudsman Service, none of these individual proposals will achieve much on their own.

It may be the FAMR was the FCA’s way of telling the industry there are already lots of things they can do within the existing rules.

This appears to reflect acting FCA chief executive Tracey McDermott’s comment in Money Marketing, to the effect she wants to make existing rules “clearer” and “work better” by giving firms “more guidance”.

None of this strikes me as rocket science.

Two thoughts come to mind as a result of this review. The first is although it is possible the FAMR may overcome the fact there is no single big idea on how to overcome the advice gap, the way the report is structured means we will not know for sure for several years to come.

The second is none of the proposals appear to have an answer for the one constant that is repeated time and time again in the report: namely the real issue about access actually appears to be a lack of trust by consumers towards the industry.

If that is the case, rather like Ishiguro’s butler who could have responded to the housekeeper’s feelings towards him but did not until it was far too late, the answer lies not in these FAMR proposals but with the industry itself.

On past experience, the industry’s response to this report will also be too little, too late.

Nic Cicutti can be contacted at him on Twitter @NicCicutti



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There are 23 comments at the moment, we would love to hear your opinion too.

  1. And who engenders this lack of trust Nic? Certainly not the clients of most IFA’s out there.

  2. Interesting thoughts about employers and robo advice. However if this morning was anything to go by it will still fail.

    I had a high earner in my office who is affected by the new £1 million lifetime pension allowance reduction. A reasonably wealthy man and comfortable. He admitted his employer, a global brand, provide some pretty extensive help to employees on their financial well being from pensions, to protection, to wills etc.

    He admitted he HAD to take advice but did not like advisers or finances come to that (which ties nicely in with your point Nick about IFAs and public trust). The help was needed around the individual protections vs fixed protections as his employer would be deemed to have given advice. What surprised me was although he had access to all this other information from his employer which he clearly understood, he had not even done the basics of make a will,. In fact he needs serious organising otherwise the only people benefiting from his plans are HMRC from his IHT.

    Hence you can lead a horse to water …….. you get the point.

  3. Stop Press:
    Next weekend`s quality financial broadsheets to run the story:
    “Man pays £1,000 fee to Financial Planner and family benefits by £50,000!”
    ….sounds a bit dull, doesn`t it (Ed.)

  4. Interesting to talk about trust. In the latest Ipsos/Mori veracity poll published in January, members of the public asked whether they trust certain professions gave salutary answers. 37% said they trusted bankers to tell the truth compared to 25% for journalists. Indeed, the only ones that scored less were estate agents, Government ministers and politicians generally.

    Muck sticks when oft repeated but if you are going to throw it then credibility suggests you chuck from a slightly higher vantage point…

  5. Ask any member of the public if they respect / trust journalists and I suspect there would be a lot of no’s amongst them. Of course the press / media have had a lot to do with mud slinging towards advisers in the past and I for one can at least hold my head up and can’t ever be accused of trying to damage the reputation of any journalist I know. Especially the one’s who go out of their way to be deliberately disparaging to provoke a reaction. My clients trust me and have done for a long time now so I guess some of Nic’s (yet again) provocative theory goes straight down the proverbial netty.

  6. Richard Clinton Green 29th March 2016 at 3:04 pm

    It does seem that only people like yourself and Moneybox seem to have a twisted outlook that thinks every adviser is only interested in themselves but what I cannot understand is if you know so much about financial services how is it that you always ignore the fact that our clients keep coming back to us year after year and then their children come to us as well?
    I’m sorry is that a different planet?

  7. No, Nic ~ The FAMR is the FCA’s way of telling the industry that it doesn’t really want to change ANYTHING AT ALL and that we’ll just have to see if we can identify and pick out a few more things from the the existing rules. Needles and haystacks spring to mind.

    Oh yes, and should you read this, could you explain the differences between automated advice and decision trees which, as we know, were hardly a resounding success when the government was intent on ramming stakeholder pensions down the industry’s throat.

  8. Since becoming de-authorised and in my new incarnation as merely an unregulated consultant I have had the opportunity to view things from a very different perspective and have been somewhat taken aback at the findings.

    I don’t think your piece is entirely accurate. These people who wish to engage and who have used an IFA are invariably satisfied. But in the main, these people are what can be fairly described as better off.

    Problems do seem to arise when there is a change of IFA or firm. Then these people seem to fall into a similar category to those who are new to the situation. In this case I really don’t think the major cause is trust – although that can be the excuse for those in this position. I believe that the main cause is one of cost. This I have come to see as two sides of the same coin.

    On the one side, from what I have seen, it is undoubtedly true that some advice firms and advisers charge far too much – some even approaching rip off rates. Sometimes this is due to pure greed, sometimes because they are daft enough not to control their costs and sometimes a combination of the two.

    The second side is the undoubted fact that it has become ever more expensive to be regulated and to provide advice. We all know the main imposts – FSCS, FCA charges, PII, FOS, general compliance. For those with a larger model VAT also comes into play making pure advice for them automatically 20% more expensive. This is alongside the continuing pressures on margins and the continuing focus on costs. (Back to controlling your own costs first?)

    Unfortunately, impressions and even some of the so-called research lead commentators to often ascribe the easy and facile reasons. True some people may well not trust advisers, but I personally doubt that this is the majority reason.

    This is where, like so much else, the FAMR fails – flaky research. This can only ever lead to incorrect and ineffective conclusions.

  9. So, in summary for those in more of a hurry (there was a lot of crap with the extended analogy at the start to be fair Nic), FAMR proposals good, Industry bad and not trusted by consumers.. Change needed!

    Cheers for stating the obvious there, I’ll just keep on doing my bit then!

  10. So interesting to read that none of the above comments address the trust issue, I think it’s one well worth exploring – certainly more that comparing the public’s trust of journalists (which is surely irrelevant here).

    Many people have been stung by FA’s, especially those who have recommended UCIS or other equally esoteric investments. These people tend to be very vocal and that has an effect on the overall publics opinion of this sector. Not an easy one to solve and it will take time, but we should all be addressing and recognising that as a profession, financial advice is not well trusted in general.

  11. Apologies – I notice Harry addresses the trust issue in his comment.

    I cam accross this joke at the weekend – it sums up my point quite well.

    Q: How many financial advisors does it take to screw in a lightbulb?
    A: One to hire a lightbulb installer to do it and then charge you 1% of your assets each year.

  12. Thomas Frodsham 29th March 2016 at 8:28 pm

    I along with others do not know where the trust issues come from,as I like others have 20 plus year old client bank who would have a different view. They continue to refer clients all the time. I think that this, despite all the changes and reviews, continues to (is anger the right word?) the policy makers.

    Why should we care about those that don’t take advice and make the wrong decisions. No one cares if I buy the wrong car/kitchen/conservatory.

    Why should we care if there are not enough advisers. You will find that those who “trusted” their advisers in the past don,t think there is a shortage. Neither do their families or close friends

    The way forward

    Bring back caveat emptor.
    If there are not enough advisers start apprentice schemes,like when there was a tradesman shortage.
    Why can,t the fca/government provide advice if they know so much.

    It really isn’t that’ difficult, but it is, because

    The biggest elephant in the room is the fscs levy, and the long stop,which no one has the bottle to discuss, never mind address. This unknown quantity prevents any trustworthy entrepreneurs, with an ounce of common sense entering the industry

    Also God help anyone entering robo advice, which will be a complaints handlers dream, and may even be the launch pad for a whole new sector. Who will handle the complaints? Or has no one thought that far.

    Never mind just bill me when it all goes wrong, and those clients who had the nerve to “trust” an adviser will end up paying, and their advisers accused of rip off fees. Welcome to the next merry go round of bright ideas

  13. Thomas Frodsham 29th March 2016 at 8:36 pm

    Oh forgot to add that pi insurance can be removed with short notice if business previously written in a different environment is now considered high risk, meaning you can no longer trade or receive fees/commissions

  14. True stories:-

    A plumber once did a bad job on my pipework and I had to get him to put it right.

    An accountant once did a bad job on my accounts which resulted in HMRC haranguing me for more tax than it turned out I was actually due to pay. Another accountancy firm overcharged me.

    A car body shop once did a bad job respraying a wing of my car and I had to get them to do it all over again.

    A garage once returned my car to me without having tightened the wheel nuts properly. Another misdiagnosed a fault with the suspension and fitted (and charged me for) a new set of shock absorbers that completely failed to rectify the problem. Another installed the wrong spark plugs, which started to coke up from the moment I drove the vehicle away.

    A builder once did a piece of work on my house that was completely contrary to what I’d said I wanted and I had to get him to do it all over again.

    A company that I’d contracted to block pave my front garden ignored the way I’d told him I wanted it done and I had to get him to do it all over again.

    A men’s outfitters made me a suit supposedly “to measure” but it didn’t fit properly at all and the two pairs of trousers were different sizes.

    A local hardware shop didn’t have the item I needed and talked me into buying instead an alternative item on the basis that it would do the job just as well, but it turned out to be completely unsuitable and a waste of money.

    I told a carpet fitter who came to lay a linoleum floor in my bathroom not to glue it down because I was still going to need access to the pipework underneath. He completely ignored me and stuck it down anyway.

    I read the other day of a solicitor struck off for fraud.

    So what do you think I do now, Nic? Do I distrust and refuse to engage any plumbers, any accountants, any car body shops, any garages, any builders, any block pavers, any men’s outfitters, any hardware stores, any carpet fitters or any solicitors? Hardly. I accepted that there are bad apples in every walk of life and found better people in all those trades who do their jobs properly at a reasonable price and keep me informed as to what they’re doing for me and why.

    And so it is with financial advisers, of whom there will always be a (small) rogue element whose activities it’s the responsibility of the regulator to identify and put a stop to their wrong doings before any more than a small number of consumers are disadvantaged. In this, I think we can all agree, the regulator’s track record to date is hardly outstanding and imposing on good practitioners costly measures to put things right after the event is hardly a glowing testimony to good regulation.

  15. I think Nic is partly correct, as with everything these days, the regulated advice industry has an image problem. Unfortunately that image is not of our own creation. Nic, Moneybox and every other financial section of the press know that they attract more readers by writing stories about the bad eggs. This perpetuates the myth that advisers are only an exam above con artists. Most of the time there will be no mention of whether or not the adviser/firm/investment was regulated. At the same time the same tabloids will happily publish adverts for unregulated funds promising unachievable returns.

    As others have mentioned the clients of advisers do not have a trust issue and probably wouldn’t recognise the comments Nic makes. A recent industry seminar I attended pointed out that the biggest single impact on an individuals wealth is not the fund/product/investment they make it is whether or not they have received advice. More often than not taking good quality financial advice leaves people better off (no surprises there then).

    The regulator could, given a bit of time, restore this perceived lack of trust in the industry by simply making it illegal to give any form of advice without being regulated by them. In addition they could dictate the funds available to “regulated” advisers. Anything else would be illegal. A clear advertising campaign explaining this combined with a list of all regulated firms and advisers provided and maintained by the FCA should make in roads in this lack of trust.

  16. For as long as commission is perceived/and reported to be bad, advisers who take commission ( in one way or another ) will not be trusted. There ought to be nothing wrong in being rewarded for selling a product. It’s what every other Industry model is based on. Regulate maximum commissions, cap product charges and then let free an army of advisers to deliver necessary financial products to the masses. There will be some who buy too much of something (nothing new there ) but generally it should benefit the savings market. I am not an ex Pru chap but I am advocating something similar but with said controls. Convincing people to save and sort out their finances should be a honourable profession. In so far as the fee based model is concerned, in my experience of dealing with HNW clients, they preferred I took commission. The regulator just went seriously wrong on this. That’s what comes of employing grads in short trousers.

    • Oh David I just have a completely different perspective on this:

      I had mainly what you call HNW clients (I called them Better Off). They all paid fees as did all my clients irrespective of financial standing. No problem there. Why? Because what they paid for was advice – the product (if there was one) came free.

      I can give but a small example. Take the matter of IHT. As a duty of care I mentioned it, but I did ask how worried the client was about it. We had a discussion at which I always pointed out that they wouldn’t be paying it – their heirs would. Anyway my first duty was to ensure their financial well being. Could they afford to give money away now? Even if they could not many were prepared to. But gifts within the limits often appealed and other ways forward that didn’t involve a financial product, that may or may not have paid commission.

      Even whole life was considered and here I suggested that beneficiaries paid the premiums as it was to their benefit. However when you calculated the total premiums payable over a projected lifespan and then deducted this from the potential (current) IHT bill – merely as a guide; it really didn’t turn out that cost effective. But at least the clients saw that I was trying to provide balanced, unbiased advice without considering what the potential product would pay me.

      THAT is being and Independent Financial ADVISER and not a product flogger relying on commission.

  17. Trust ?

    Can I find a Builder or a Plumber or an Electrician or a Mechanic or a Decorator or a Gardner or an Accountant or a Solicitor or Financial Adviser or a Banker or a Politician or a Journalist or an “Industry” I can TRUST ? Where do I start to find the trustworthy ? Prominence is always given to the occasional “dodgy” this or “dodgy” that – does this make them all untrustworthy ?

    The Nanny State or Opinionated are constantly trying to tell the rest of us how we should run our lives because (with or without Qualifications and or Experience) they know best – But do they ?

    The suggestion (often repeated) is people will not engage because of a lack of trust. Yet it will always come down to a matter of priorities.

    Priorities Priorities !!??

    Financial Advice to improve you & your family’s current and future well being.
    – Shopping – necessities including Food
    – Paying Utilities – Gas, Electric, Water, Council Tax.
    – Children.
    – Car (or additional car/motorbike).
    – Latest iPhone on £30+ per month contract.
    – Shopping – discretionary including Designer Goods etc.
    – Sky TV including Sports & Films.
    – Hobbies/leisure activities/going out.
    – Gambling/Bingo etc.
    – Holidays
    – Interest Free credit for new furniture.
    – Home Improvements.
    – etc. etc. …..

    Now let anyone put them in order of priority ?
    Even if Financial Advice cost was a very small or a zero fee – would it affect it’s place in the priority order ?

  18. Nick Wardle ~ The regulator would NEVER dictate [approve] the funds available to “regulated” advisers, as to do so would mean that it would be held responsible were any of them to go bad.
    The FCA is at regular pains to point out that authorisation should not be conflated with approval. Nor could it possibly analyse every fund on the market with a view to banning any that look dodgy.

    For their part, advisers do not have the resources to analyse every and any fund on the market with a view to establishing beyond reasonable doubt that they’re 100% sound and may therefore be recommended with absolute confidence. The best we can reasonably do is rely on the research, analysis and assessments carried out by independent specialist agencies such as Rayner, Spencer, Mills, etc. And, as we know, even that isn’t considered by the regulator to be sufficient. Rather, we’re expected to have 20/20 vision and crystal balls.

  19. Ah the good old trust debate …… takes a life time to earn 10 seconds to destroy !
    In this instance Nic maybe correct, but it doesn’t, help when those in high power “dis” the industry, at every given corner, just a few quotes, “be afraid” ” “I would put them all in a barrel and shoot them” “shoot first ask questions later” aimed at advisers, “Toxic” aimed at the product itself, do you trust the industry “No” , “rip off” aimed at pensions and charges, then you get the press, always looking to stir the …. to make the room stink and cause controversy,

    Its a dirty job, but one I get a great deal of satisfaction (from a client perspective) but one where the very people (FCA, MAS, FOS, FSCS etc etc) who only survive, is of the back of the very people they disrespect at every given opportunity.

    From a personal point of view I only take on a new client if they have been personally recommended from an existing client, so in short I am very choosy as to who I take on as a client, and the client needs also to be very choosy who they take on as an adviser, pin the tail on the donkey or taking pot luck from the yellow pages etc etc etc is not the answer do your due diligence get a recommendation, I have never been swayed by a nice web site, expensive letter paper, big adds, good tradesmen, good advisers don,t need to because they know very well, do a good job for some-one and the chances are they will not tell a sole…… do a bad job, and you can be damn sure every-one in the pub will know that night what they think of you.

    Do not, put your faith in the FCA, Treasury, MP’s, press or any-one else to back you, these buggers will burn you at any given opportunity, and they will do it with a smile, while patting you on the back.

    You get one person who is a headache and the whole industry is force fed paracetamol……..

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