In November, I was asked by Harriet Baldwin MP (who many may remember came to a Panacea ‘Meet the MP’s event” shortly after her election in 2010) to contribute to the HM Treasury Financial Advice Market Review (FAMR) due to the size, influence and knowledge of the Panacea community.
The Financial Advice Market Review, as you will be well aware, was launched in August 2015 to examine how financial advice could work better for consumers. It is co-chaired by Tracey McDermott and Charles Roxburgh, Director General of Financial Services at HM Treasury.
The meeting with HMT’s Tara Fernando and some treasury seconded FCA officials lasted some ninety minutes where a number of concerns with regard to the five specific FAMR reference sources were discussed for the benefit of the consultation.
There was a great willingness to listen.
It was very clear that there was a considerable lack of understanding around many issues of IFA concern. I think this is because there is a knowledge gap, possibly caused by a failure or desire to fully understand how intermediated distribution works and why. And to understand advice responsibility anomalies such as the current lack of longstop.
It is also clear that regulators do not understand that savings and protection products are sold to the mass market, not actively purchased.
The Treasury and the FCA appear to have no knowledge of the workings or long history of commission payments, the maximum commission agreement or its reason for removal.
You may find the following bullet points with some supporting links, that were the subject of some detailed conversation, to be of interest:
1. The extent and causes of the advice gap for those people who do not have significant wealth or income
- Heath Report an overview, access to the report and podcast
- Commission v Fee the RDR/ GFK report
- Fees and the post RDR world
- UK advice & distribution model
- The FCA was trumpeting the fact that adviser numbers had gone up since RDR and the industry should as a result rejoice.
- From January 2012 to July 2013 23,406 registered individuals (RI’s) have left the industry and 9,573 have joined.
- For 2014, 5,979 RI’s have moved firm, 6,799 are no longer authorised and 4,576 have become authorised. Some 17,332 changes in one year and a 2,223 net loss of RI’s. Hardly something to shout about.
2. The regulatory or other barriers firms may face in giving advice and how to overcome them
- Cost, known’s and unknowns, FSCS funding is wrong, unpredictable and unfair.
- PI cover, retrospection of regulation makes pricing impossible, a claim makes even getting it a herculean task (air bag analogy)
- New blood, the aspiration of many to start a new advisory firm has been dampened to say the least. The costs are enormous.
- FOS perceived bias FOS survey, a link to 2014 survey and to the 2011 survey
- FOS has no affordable right of appeal, unlike ABTA for example
- Longstop removal and some other notes on the subject. Regulators today are in many ways a ‘doppelganger’ of the trade unions of the 1970’s, creating unrealistic, restrictive working practices at high cost allowing little or no competition. And we all know how that ended.
- Many small firms live in fear of the FCA and will not raise their heads above a paparapit to voice concerns for fear of retribution. Very worrying but perhaps ‘Sir Hector’s message was received and understood
- The ‘Waterbed effect’. It’s effect is the natural but not necessarily intended potential to squeeze one part of a complicated and complex regulated business model (and the attendant regulatory processes) to cause a serious bulge elsewhere in the process.
3. How to give firms the regulatory clarity and create the right environment for them to innovate and grow
- Rules V principles based regulation, rules provide frameworks to refer to
- Simplification of rules, permissions etc. Regulators today are in many ways a ‘doppelganger’ of the trade unions of the 1970’s, creating unrealistic, restrictive working practices at high cost allowing little or no competition. And we all know how that ended.
- Regulation creates a mess wherever it manifests itself
- No notice is taken of the Regulators code, why?
- The consumer must take some responsibility for bad decisions
- Mail trail on trail commission removal matters to Mark Garnier
4. The opportunities and challenges presented by new and emerging technologies to provide cost-effective, efficient and user-friendly advice services,
- Simplified advice, but what is it- needs defining
- A solution: to licence a product as fit for purpose, with that purpose clearly defined, as part of the process is the single most effective consumer benefit a regulator could put in place. It is the CAA equivalent of being fit to fly, it is the Food Standards Agency equivalent of safe to eat, it is the VOSA equivalent of saying your car is safe to drive.
5. How to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice
- Consumers should understand that advice comes at a price but that price and the method of how it is actually paid should be determined by the client and adviser firm together and not a regulator.
- Is commission still a dirty word?
- Maximum Commission Agreement (MCA) during the 1980s and perhaps earlier there was an apparent unresolved conflict in government policy between investor protection and the belief in unrestricted competition. OFT objected!
- Pro bono working in IFA firms was the norm in a pre RDR world
- It is not in a post RDR world
- The circle game? FSA told consumers advice under RDR wouldn’t cost more. Right possibly, but fewer now have access to it
The review will close on the 22nd December 2015, you have just a few more days to contribute.