The Financial Conduct Authority (FCA) released the Financial Advice Market Review (FAMR) with a bang on 14 March, two days shy of the Budget.
Many of the proposals were welcomed – including the pensions dashboard, and the nudge approach to financial management, but overall the industry response has been mixed.
Some advisers consider the proposals too vague, others have argued that the timeline given for implementation is too short. That the report didn’t mention the return of commission was welcomed, and although the ruling out of the long-stop will have knocked those that campaigned for it, many welcome the clarity provided.
The long anticipated report, the result of a joint Financial Conduct Authority (FCA) and Treasury project, aimed to encourage consumer take-up and awareness of advice.
It looked at how to make financial advice more easily available to the mass market. Some more high-end advisers argue this is out of their remit, but others are interested in offering the suggested ‘streamlined’ advice or robo-advice aimed at this demographic.
Clarity questioned
That the report is vague was a criticism levelled by many. In his weekly blog, lang cat principal Mark Polson went further than this: “What we got [with this report] was 80-something pages of prevarication, ‘wisnae-me-guv’ sloping shoulders, and 28 recommendations, 21 of which were suggestions of further consultations, working groups, exploring options, discussions, and other synonyms for ‘consult’.”
Rowley Turton IFA Scott Gallagher wasn’t much more positive, he said: “What are they actually doing? There are a lot of recommendations that call for more communication but little more than this.” He also said the consultation had been conducted too soon after the Retail Distribution Review and that “actually the market was resolving the problem of the advice gap without government intervention.
“Auto-enrolment is bringing pensions to the mass affluent. There is a now a workplace advice market. There are also very many more robo-advice propositions and guidance groups. I would argue that this report was not needed because market forces were doing their job.”
Gallagher also had questions around the proposed timeline for implementation, he said: “Two and a half years won’t be long enough to assess a market and implement rules such as those around guidance, advice and streamlined advice. In that short time, the FAMR will need to define the difference between streamlined and full advice; get a guarantee from the financial ombudsman that it will uphold these definitions; get the PII insurers on board; and ensure advisers are complying too. It’s a big job.”
Chapters Financial director Keith Churchouse is another adviser that thinks the proposed timeline for implementation of the report’s recommendations is inadequate.
“The FCA and HMT aim to develop an appropriate baseline for development of the advice market over 12 months. These outcomes will be reported in 2019 but this is not long enough.
“It has taken four years to comprehensively report on the RDR and any decent review would take at least this amount of time.”
Churchouse also said that the report is a tacit admission that elements of the RDR have failed: “The FAMR is the ‘crowning document’ of the RDR and acknowledges that the review cut people off from advice and that regulation of the industry has gone overboard.”
Definitions
The FAMR also aims to bring definitions of advice and guidance into line with the European MiFID legislation and this is a good thing according to some commentators. Polson said this should allow sensible rule-of-thumb advice without needing to create a 30-page suitability letter, and that any grey area between advice and guidance is “one of the biggest danger points for consumers”.
However, Barnett Waddingham senior consultant Malcolm McLean was more sceptical: “Disappointingly the review doesn’t take us any further in ensuring that consumers fully understand the difference between guidance and advice.”
Levies
Another element of the report that will be broadly welcomed by advisers is the proposal to recognise risk exposure in the Financial Services Compensation Scheme (FSCS) levy. This means firms will be charged a more proportionate fee in line with their practices.
Old Mutual Wealth chief distribution officer Richard Freeman said this is a very positive move: “High-cost and unpredictability in the FSCS levy have become a burden for advisers, prohibiting small business owners from investing for the future of their firm.
“That the FAMR review proposes a more proportionate FSCS levy will create economic conditions allowing these firms to grow.”
Nucleus CEO David Ferguson added: “Risk-based FSCS is a very sensible step which will reward those that have been doing the right thing for years.”
Providers
The providers were typically more positive on the report generally. Standard Life head of pensions strategy Jamie Jenkins described the report as “good, if not excellent”. He added: “It has given rise to additional questions and further work but that is to be expected.”
Jenkins said that the most interesting FAMR recommendations (18 and 19) urge the industry to use nudges to increase uptake of financial advice.
He said: “This is likely to influence direction in a number of areas. Auto-enrolment was a nudge from employers to take a workplace pension scheme and now nine in ten people (6 million of them) stay enrolled.
“You can imagine this might be extended to encourage set up of a pension as employment commences, or take up of life cover or protection when married for example.”
He also said that he thought the pensions dashboard was a “great idea”. But added that “Although most of the industry are on board with this, additional government legislation would be very helpful.”
He went on to say that the report’s focus on the role of the employer was welcome too. “Proposals to increase incentives for employers to provide advice around guidance and advice for employees (11,12 and 13). It recognises that employers need to be made comfortable around providing guidance.”
Close Brothers Asset Management head of advice Andy Cumming said of today’s FAMR: “It’s tempting to see the review as a lot of sound and fury, signifying nothing in the short term.
“But I hope it will act as a platform for meaningful change and improve access to personal advice and appropriate guidance for the mass market.
“A clearer delineation between guidance and advice will ultimately benefit the end consumer, reducing the level of confusion over what constitutes advice.
“Any move that helps boost financial education and planning among prospective retirees is to be welcomed.”
The post FAMR: Just what the doctor ordered? appeared first on Retirement Planner.