The Financial Advice Market Review

by Damian Davies on 14·10·2015

Background

One of the unintended consequences of RDR is that most of the profession has designed service propositions that best suit higher value clients.  At the same time, the mass market advice channels that served lower value clients have pulled out, and so there is an 'advice gap'.

The Treasury are therefore leading a review of how advice is delivered, which is the Financial Advice Market Review. 

The terms of reference outline 5 objectives of the review: 

• To examine the advice gap for those people who want to work hard, do the right thing and get on in life but do not have significant wealth;
• To examine the regulatory or other barriers firms may face in giving advice and how to overcome them;
• To examine how to give firms the regulatory clarity and create the right environment for them to innovate and grow;
• To examine the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice services;
• To examine how to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.

What this means is the treasury want to help advisers give profitable advice to those who currently can't access it. 

A massive part of this is that the review will also consider the interplay between the regulatory framework for advice and the role of the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) in redress.

Implications

This review means change will happen. 

The reason it is including the Treasury, rather than just being the regulator, means that somewhere the government feels that without advice, either they are not getting a good cut of the action today or face mounting benefit liabilities tomorrow. 

The review is incredibly short lived.  It is due to report it's finding before the next budget!

Considerations

As change is inevitable on this one, I think it is better to influence the change than simply being a passenger. 

We want the best outcome for advisers, so please can you tell me what you think about these issues:

• Who needs advice and who needs planning?
• Who may be affected by the advice gap?
• Are there barriers that put consumers off seeking advice?
• What might put you off from giving advice to the people mentioned above?
• What does the UK's current regulation of advice do well/badly?
• What can we learn from regulatory regimes in the EU and internationally?
• Would a form of limited liability, long stop or 'safeharbour' for advice encourage you to look after clients affected by the advice gap?
• Would a form of limited liability, long stop or 'safeharbour' for advice create a licence for some to go renegade?
• How should the regulator, treasury, FOS and FSCS work together to encourage advisers to service the advice gap?
• What other changes could be introduced to 'limit' the risks an adviser faces?
• Is technology really the answer?
• What dangers are there is 'robo advice'
• What options would you like the review to explore?

Action

I believe 'robo advice' (online, algorithm based) can work for investment selection processes but that it is just not possible to do the same for proper advice. 

As a result, I propose the process of giving advice needs to have a safeharbour around straightforward products that encourages regular commitment to an individuals' own future. 

I would like the safeharbour to create an easily understood boundary of obligation and scope for advice on straightforward products that uses the efficiencies of algorithm based investment solutions to create efficiencies to reduce costs of delivering advice and therefore closing the advice gap.

I would like these boundaries to ensure that consumers know they will be receiving advice under the same parameters of suitability that the current legislation offers.