Advice climbed higher up the FCA’s agenda this year, with a “barrage” of announcements on everything from suitability reports and platform due diligence to compensation scheme levies.
With FCA chief executive Andrew Bailey appointed to the role in January, the regulator effectively had a clean slate from which to work. By March the regulator, together with the Treasury, had kick-started its flagship Financial Advice Market Review.
There were some eye-catching reforms among the 28 recommendations, including plans for a £500 tax-free pensions advice allowance from next April, a new robo-advice unit at the FCA and a working group to look at changing the definition of advice.
FAMR was specifically aimed at improving access to advice, but some think it has not gone far enough.
True Potential managing partner David Harrison says: “FAMR has told us what we already knew, but at a huge cost. There is an advice gap, but the biggest danger is the savings gap.”
With a slant towards getting people with simple needs access to guidance or streamlined advice, there were fears FAMR would be a catalyst for banks and providers to storm the advice market. But these do not seem to have materialised.
SimplyBiz group compliance director Gary Kershaw says: “With a new chief executive everybody assumed there would be a bias towards bancassurance, but recent developments show no sign of that bias. That will create a greater onus on the banks’ products and dealing with customers directly.”
Suggestions on suitability
FAMR had been trailed since last summer. However, a letter sent to 700 advice firms in April from the regulator asking them for a list of all the personal recommendations they made over the course of 2015 was less expected. The purpose of the data collection was to assess suitability across the market.
Combined with a series of events this year called Live and Local featuring Positive Compliance workshops as well as a proposed new adviser engagement strategy, some have seen this as an attempt by the FCA to reach out to the adviser community and take stock of the market as a whole.
Compliance & Training Solutions director Mel Holman says: “The FCA hasn’t looked at smaller advice firms for some time. This is taking a step back, an examination of the state of the nation from the front line and what is actually happening.
“The Positive Compliance workshops were well attended. What the regulator is looking to see is those sessions put into practice. There is definitely going to be some fallout from the suitability review if not.”
Holman says she would like to see more guidance from the regulator on platform due diligence and research, with examples of good and poor practice.
But it has not been all good news for advisers, with an expected increase in regulatory bills next year. Earlier this month Financial Services Compensation Scheme chief executive Mark Neale announced an interim levy was likely as Sipp related compensation claims continue to pour in.
Holman says: “Another interim levy for Sipps and unregulated investments has got a lot of people hacked off. A lot of advisers avoided unregulated products like Harlequin and all the rest. Now you have got people going into default as a result of those firms pushing it all and people are asking how did it get this far? There will be a lot of pressure on the Financial Services Compensation Scheme.”
A key trend that compliance experts have picked up on has been an increased volume of regulatory announcements related to the advice market.
Kershaw says: “Throughout the year there’s been a barrage of consultations and policy statements. We have had to beef up our team to respond because these days the papers are coming so thick and fast. The FCA is covering a diverse number of subjects. The big ones are the consultations that are out now, such as as Mifid II, which will have a significant influence around product governance and taping phone calls.
“The market study on fund management, in particular charges, shows a bias towards passive investments. While I’m a big fan they don’t always deliver the performance, so it will be interesting to see the outcome of that.
“Whether we see a reduction in charges or not, the statements the FCA has been making mean it is clear people have been making too much money. That is really going to affect how advisers select funds.”
Matt Connell is head of regulatory developments at Zurich UK Life
There has been a quite a lot on this year. The FCA’s Mission and taking on consumer credit is a huge change. That changes the landscape a lot and makes prescriptive, detailed interventions on investment issues less likely in the future.
The Mission hinted at the massive demands in terms of resources on the FCA. The FCA still says long-term savings and adequate retirement incomes are a huge priority, but it is something they are going to achieve through improving information and services to consumers and preventing companies from exploiting behavioural traits. There is a commitment to shape information flows like the pension dashboard rather than constantly going through the rules and definitions. It is no less impactful in terms of the asset management market study, say, but it is being done in a different way.
The importance of advice as a form of consumer protection has been reinforced in a way in some of these interventions, so it works in both directions.
You cannot read too much into the Mission yet because the regulator has to be fully committed to a thorough job in every sector, but behind the scenes we are unlikely to see big set-piece changes to the rulebook, as the FCA does not think that is appropriate.
The big challenge is with European regulation. Priips had many outstanding issues right up to when it was meant to come in and was so fraught the implementation had to be delayed.
You can imagine a similar scenario with Mifid and Priips coming together. We have to have a reasonably clear and consistent approach across firms, otherwise the information does not tie up.