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PFS: Are firms ‘driving consumers to wrong place’ by turning down clients?

Personal Finance Society chief executive Keith Richards says advisers need to consider whether they are “driving consumers to the wrong place” by turning down would-be clients with less to invest.

Speaking to Money Marketing yesterday at the PFS annual conference in Birmingham, Richards said the RDR had not caused the level of market disruption that had been expected, and that consumers seemed to responding to the reforms positively.

But he pointed out that while advisers continue to serve existing clients, they are choosing not to advise people with fewer assets.

He said: “With new clients, we are hearing that the RDR rules are having some impact with advisers becoming more selective. We are seeing some turning away of customers who are below a certain asset value. That is much lower than predicted but it is likely to grow over time. That compounds the advice gap problem.

“The growing concern for many is while there is a prediction that self-serve solutions will become more popular, that exposes consumers to much greater risk, because without being appropriately qualified and understanding the treatment of tax, a consumer could be making a catastrophic mistake with their finances.

“So we have a responsibility to consider whether we are driving consumers to the wrong place. If you have got a risk averse client, actually self-serve can be extremely high risk.”

On the issue of independence, Richards there is still a lot of “noise” about whether firms were complying with the FCA’s definition. But he said the bigger challenge is getting clients to understand advice labels.

He said: “If the industry is struggling to understand, what chance does a consumer have of understanding the difference. Especially now you have got advisers switching to restricted whole of market. The debate not only confuses consumers, it continues to fuel confusion in the industry and it probably frustrates the regulator.”

Richards argues there comes a point where firms need to satisfy themselves whether they are meeting the rules or not, and that actually the FCA is more concerned with good consumer outcomes.

He said: “We are not satisfied the rules are clear enough in every situation, but a set of rules cannot cover every situation- it is for the individual to apply the rules appropriately. Because if we keep demanding that the regulator give us clarity on those extremes, we complicate and confuse the matter further.”

Click here for all the news from the annual PFS conference



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Keith, It should be the partial responsibility of the regulators to provide an environment where advisers have a fighting change of being able to offer cost-effective advice to those who need it. If the cost of complying with regulation makes the (compulsory) up-front initial cost of advice too high then self-service is what happens. Where possible I am sure that many advisers would advise on a “loss-leader” basis, but the circumstances where this can happen are few and far between. Most firms are having to work all the hours they can to ensure they remain in profit, so charity work is not usually possible. Steve Webb is of the view that advice is not needed when making potentially the biggest investment decision of your life (where do I place my pension contributions), so maybe you should focus on lobbying him rather than expecting advisers to make all the compromises.

  2. “So we have a responsibility to consider whether we are driving consumers to the wrong place…’

    Who is ‘we’? The last time I looked, I was a privately-funded business not a publicly funded body or the Archbishop of Canterbury!

  3. Since when were the regulator’s rules clear enough for just about any situation? You’re damned if you interpret them this way and damned if you interpret them another ~ all after the event, of course. It’s a lose lose situation with the regulator holding all the cards of a rigged deck.

  4. Brian, I agree that the onus does not rest with the advice profession alone and from a public interest perspective this matter needs to be addressed collectively. When I said ‘we’ have to be careful that we are not driving consumers to the wrong solution, I meant it was an issue which needs to be addressed by all of us.

    Advisers are taking different approaches to the challenge at present with some prepared to charge a lower fee, or in some instances trying to offer streamlined processes or non-advised solutions – naturally this will not be of interest, or even viable for all. Segmentation strategies were in place long before RDR of course, as were fee structures, but only a relatively small percentage of firms fully implemented both.

    It is acknowledged that regulatory risk, process and cost is additionally forcing advisers to consider the commercial viability of offering a service below a certain asset or fee value and the FCA does need to face up to this unintended consequence created by their predecessor. Whilst this does not appear to be impacting existing clients to any great extent at present, feedback at conference suggests that new clients are understandably being treated different – a solution therefore needs to be found.

    The regulator and government have acknowledged this growing issue to some extent and there are different industry groups being formed to seek and propose possible solutions. I acknowledge your reference to auto enrollment – we have challenged this assertion backed by consumer feedback/survey.

    During the course of conversation with Tessa, I highlighted that poor consumer outcomes are likely to occur as a result of leaving consumers with little option but to self-serve, where the financial consequences of getting it wrong could be catastrophic.

  5. The simple, hard truth is that regulatory interference has forced up the costs of providing compliant advice beyond the reach of pretty well everyone of modest means. It’s not a matter of turning people away. It’s a matter of quoting a cost to do a job and if that’s unacceptable or unaffordable, then sorry Mr Client, you’ll need to go elsewhere. I’d like to be able to help you, but the endlessly escalating burdens of regulation mean that I can no longer do so at a reasonable price.

    Only the FCA can fix this by allowing practitioners to offer a streamlined advice process that will strike a sensible balance between the work involved and what’s affordable. Perfect and perfectly researched and documented outcomes for every set of client needs are a Utopian but impossible aspiration. Intermediary businesses are just that ~ businesses that need to provide their services profitably. If they don’t, they’ll go under. How can it be any other way? Moreover, a streamlined advice process is almost certainly adequate for 95% of client situations.

    For their part, the PFS, APFA and all other representative bodies should together draw up a template for a streamlined advice process and present it to the FCA as a practical and cost-effective solution to the present impasse. It really doesn’t need to be any more complicated than Proposition, Costs, Risks & Tax. Martin Wheatley must surely know this is the only solution to the advice gap about which he has publicly admitted concern. So come on, Mr Wheatley ~ actions speak louder than words.

  6. Keith, I agree that it is the responsibility of all of us to try and make change happen, and I do my best. But it is not the likes of me that shape legislation, I do not get the opportunity to debate the issues with the policymakers and shapers. I think Julian has hit the nail on the head in his post of 9.02am. A streamlined “advice” process is what is needed. And those advisers who care about this segment of clients have done pretty much everything they can to try and make the FSA (as was) see that this is what is needed.
    I am not sure how frustrating you find it trying to deal with politicians and regulators who seem to either have a pre-set agenda or who just do not understand the consequences of their policies. The problem is not helped when other IFAs who have their own vested interests spout irrelevancies about the sanctimony of independent advice. This is about clients interests not adviser firms. And that is the problem, the vested interests of the large providers and large adviser firms and those small IFAs who deal with mainly HNW clients are not impacted by the consequences of this “advice” gap. So Keith, I do not know how you go about making change happen, but you are in a better position than us advisers to do something about it. I wonder whether you see it as important enough to help clients though, when your role is there to represent the interests of your band of advisers? After all this is a matter of social conscience not commercial necessity.

  7. Brian, you make some fair observations as does Julian. As a professional body, our focus is from a consumer perspective and I believe that this is the only way the matter is likely to be addressed.

    Regulation has deliberately driven in change to stop wide spread poor consumer outcomes and has largely achieved this objective but has also introduced a number of unintended concequences along the way.

    It is now time to allow the advice profession to stabalise and evolve and for the regulator, together with the industry, to focus on addressing consequences which can lead to poor consumer outcomes.

    We are engaged in discussions across the sector and are working collabaratively with other organisations to propose soltions to this and other consumer related issues. So far we are seeing a willingness to engage and therefore balanced consideration and viable solutions are more likely to be considered than was perhaps the case in the past.

  8. You learn something new every day….. I have booked the new CII Securities advice and dealing exam for next Tuesday and as there is a fair amount of overlap with other subjects i have studied, I decided I’d sit the CII Discretionary Investment management exam next month. Not that I plan on running a discretionary portfolio, but having discretionary rights would make simple changes for clients much easier I thought so I checked with my compliance consultant about that and passporting as I seem to be building up clients who are moving to France and only advising them when they are in the UK is becoming difficult. I knew it would mean increasing capital adequacy to 25 or 50K euros, but what i didn;t realise is a firm with discretionary rights is not required to complete a suitability report for minor changes. That could bring the cost of delivering a service DOWN and enable us to service lower value clients perhaps, ironically by being discretionary and carrying more capital adequacy.
    I hope my compliance consultant has got it right (he usually does)

  9. Keith,

    That is an encouraging response.

    Attention now needs to be given to MAJOR lobbying to stop and think about the dangers of imposing an arbitrary cap on maximum charges for QWP schemes that were previously considered acceptable for auto-enrolment. The resultant abolition of perfectly good existing schemes on the basis of OCF cost alone would be folly indeed. The pensions industry will already struggle massively to meet the capacity demands, so to then outlaw schemes which are already in place will cause a logjam. There is a lack of awareness which is simply frightening. AMD issues can be solved by other means than to ban all AMD schemes. Having seen the problems caused by a blanket solution for individual advice why is Steve Webb now proposing another blanket solution in the corporate benefits arena? Or has he not seen the problems? Scary indeed.

  10. There is a lot of sense being spoken here. I would however like to take issue with one phrase. There are a couple of uses of the term ‘unintended consequences’ in these comments. There were a lot of predictions that this would be a consequence, and no effective refutation (or disagreement) from anyone that I saw. If the regulator chose to accept the proposition that one consequence would be a retrenchment of advice from the mass market, and chose to implement the policy anyway then it wasn’t an ‘unintended consequence’, it was acceptable collateral damage (acceptable to the regulator).

    It is now something that needs to be addressed to prevent short term damage to the mass market becoming a rout into massive non planning for the future, with the terrible social consequences of such inaction. But lets not pretend that it comes as a surprise that this has happened.

    It is the regulators responsibility to create a workable framework, but it will be the advisory community that ends up delivering it to the market, so it is in our interest that it is workable, sensible, and proportionate. Even if we are not active in that space and have no intention of being so it is simple sensible foresight for us to engage in constructive dialogue to try and get this up and running both quickly, and efficiently. Otherwise it will be us who are blamed for the failure of a generation to make provision for the future.

  11. @john Stirling – Why knows if they were “Unintended consequences”, they certainly were NOT unforeseen as they were foreseen and the FSA were told on many occasion as was the TSC and the TSC recommended a 1 year delay of RDIP, but Sir Hector the Undeserved and Laughing Girl Nichols wanted to sail on regardless and if they are now hitting the iceberg it is their fault and no-one else s.

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