This week, the Financial Conduct Authority (FCA) published its long-awaited
Financial Advice Market Review (FAMR). With the help of an independent panel of industry experts, the FCA has made 28 recommendations that it considers will improve the financial advice market for consumers.
Many observers, including the CISI, have welcomed the report, while some have criticised the recommendations for not going far enough to address the financial advice gap.
Mixed messagesIn its response to the FAMR report, the CISI begins by expressing its concerns that the FCA could be sending “mixed messages” with regards to the value of qualifications. The report recommends that employees in the financial advice sector now have four years to attain an appropriate qualification – an increase of 18 months – which the Institute said it was “surprised” to see.
However, the CISI praised the regulator’s advice to embrace technology and auto-advice models, which it says will “have a role” in making advice less costly, but is “unlikely to replace dealing with a real person who can fully understand and empathise with clients’ needs".
28
The number of recommendations the FCA makes in its reportThe reason why financial advice comes at a premium, says the CISI, is significantly due to high regulatory costs and risks. It notes: “Advisers remain at risk from retrospective regulatory reviews with the benefit of hindsight.”
Finally, the Institute praised the FCA’s recommendation that consumers have access to a sufficient proportion of their pension pot before normal pension age to spend on advice ahead of retirement.
The CISI's response
Genuine recognitionThe
FT Adviser’s blog features the opinion of a FAMR panel member, giving an insight into how the recommendations came about.
Richard Rowney, Managing Director of Life and Pensions at LV=, says that the report included “much to be pleased about”.
He too praised the recommendation of access to a pre-retirement advice pot. “We know that the cost of advice can put people off taking it and we welcome the suggestion that people could be allowed to pay for advice from their pension pot”, but says that he and the panel were “disappointed that the report did not take forward our call for a voucher for the most vulnerable".
He says: “A voucher would be particularly beneficial for those whose pension pots will need to work extra hard in retirement, and we will continue to discuss this idea with government to see how it could be delivered at low cost.”
“The devil will be in the detail and it’s important the industry engages on the implementation of these reforms”
Like the CISI, Rowney considers the recommendation of more auto-advice within the market to be encouraging, describing it as “the other big positive” from the review.
“Overall,” he says, “we were pleased to see genuine recognition from [the] Government that a range of measures are required to make advice genuinely accessible for all. As ever, the devil will be in the detail and it’s important the industry engages on the implementation of these reforms".
Calling for quick implementation of the recommendations, Rowney says: “Speedy delivery [is important] so advisers have regulatory clarity and consumers can begin to get the better outcomes they deserve as soon as possible.”
FT Adviser blog
Advisers reactIn his article for
IFA Magazine, Neil Martin gives a platform to individual industry players.
Andy Cumming, Head of Advice at Close Brothers Asset Management, admitted that it is “tempting to see the review as a lot of sound and fury, signifying nothing in the short term".
But he goes on to laud the report as setting “a platform for meaningful changes to improve access to personal advice and appropriate guidance”.
Singling out the recommendation for clearer definitions of guidance and advice, Cumming says it will “potentially allow the provision of more detailed guidance to the mass market. Any move that helps boost financial education and planning among prospective retirees is to be welcomed".
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, thinks the FCA and Treasury have done an “excellent job of deconstructing the myriad ways in which the investment industry has become unable to serve all its potential customers effectively”. But Graham Vidler, Director of External Affairs at the Pensions and Lifetime Savings Association, is more critical: “Even if savers are allowed to access their pension pots early to pay for advice … the cost … still represents a big proportion of the average pension pot."
Vidler adds: “An alternative approach is needed to support the great majority of savers who will continue to be excluded from financial advice, particularly when it comes to making decisions about their retirement incomes.”
Somewhat echoing Vidler, Chris Hannant, Director General at APFA, describes the review’s conclusions as a “missed opportunity”.
“While many of the proposals will be helpful, concrete measures beyond further clarification and guidance are needed.”
IFA Magazine article
Seen a blog, news story or discussion online that you think might interest CISI members? Email joanna.lewin@wardour.co.uk