Financial Conduct Authority
Reforms will make financial advice and guidance work better for consumers
Millions of consumers could have better access to affordable financial advice and guidance that meets their needs at every stage of their lives as a result of recommendations from the Financial Advice Market Review (FAMR), published today.
Co-chaired by Charles Roxburgh, Director General, Financial Services at HM Treasury and Tracey McDermott, acting Chief Executive of the Financial Conduct Authority (FCA), the review has found that there is a clear need for intervention by the regulator and the government to help both consumers and industry benefit from new and more cost-effective ways of delivering high quality advice and guidance.
The FAMR recommendations will help to address current concerns about the affordability and accessibility of financial advice and guidance, particularly regarding the ‘advice gap’. FAMR builds on improvements made to the financial advice industry brought about by the Retail Distribution Review (RDR) which raised the standards of professionalism across the financial advice market.
FAMR outlines practical ways to enable consumers to engage with and access advice and guidance, urges changes to how financial advice is defined and suggests a new advice framework to help firms best meet the needs of consumers. The report makes a range of recommendations aimed at ensuring firms are able to provide more affordable advice for more consumers.
Tracey McDermott said:
“This review has taken place against the backdrop of social and demographic changes which have led to an increasing need for individuals to take more responsibility for their own financial future. But we know that people often find it difficult to engage with financial matters and we need to make it easier for them to do so.
“The package of reforms we have laid out today will help increase both the accessibility and affordability of the advice and guidance to ensure that consumers get the help they really need when they really need it.”
Charles Roxburgh said:
“At a time when more and more people are seeking financial advice and guidance, we have set out how we can deliver a vibrant financial advice market that works in the interest of all consumers. Our recommendations will increase the amount of affordable, high quality financial advice that is widely available so it’s easier for people to access it at every stage of their lives.”
To make financial advice and guidance more affordable for consumers, FAMR calls for the government to consult on changes to legislation to narrow the definition of regulated advice so that it is based on a personal recommendation. Crucially, this would create a single definition for regulated financial advice and remove some of the barriers that exist for firms wishing to offer guidance services.
The report recommends a number of measures for the FCA to take forward which are aimed at giving firms the confidence to deliver streamlined advisory services focusing on specific consumer needs. It should also consult on measures to support firms developing guidance services that help consumers make their own investment decisions.
FAMR also highlights the increasing role that technology can play in creating a more engaging, cost-effective advice market. It recommends that the FCA extend the work of Project Innovate and establish a unit to help firms develop their automated advice models.
To make financial advice more accessible, FAMR has called on the government to allow consumers to access a small part of their pension pot to redeem against the cost of pre-retirement advice. This will ensure that consumers can access financial advice at a key milestone in their lives and feel confident in making financial decisions as they approach retirement. The report also urges the government to explore ways to improve the existing income tax and National Insurance exemption for employer-arranged pension advice.
To provide greater certainty for advisors regarding their future liability while maintaining robust consumer protections, FAMR has made various recommendations for the FCA to consider in its review of how the Financial Service Compensation Scheme (FSCS) is funded, which will begin in April 2016. FAMR has suggested that the funding review should explore alternatives to enable advisers to plan costs more effectively. It also proposes a series of measures to improve the transparency of the processes and decisions of the Financial Ombudsman Service.
After careful consideration of the evidence FAMR has concluded that relatively few complaints relate to advice given by independent financial advisers 15 years ago or more. As a result FAMR has ruled out recommending a 15 year long stop as this would inappropriately limit protection for consumers on long-term products.
Notes to editors
The report uses ‘advice’ as a shorthand for regulated financial advice. Other forms of help provided to consumers, which do not meet this definition, are referred to in this report as ‘guidance’.
FAMR considered claims data from the Financial Ombudsman Service over the last 3 years and this shows comparatively few complaints relating to advice provided by independent financial advisers longer ago than 15 years (an average 216 complaints per year, of which only 30% were upheld). 48% of these types of complaints were concerning advice about mortgage endowment products. However, given the historic nature of the problem and given that these were pre-RDR, FAMR believes that there may be a natural decline in the numbers of these complaints.
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