On April 13 2016, a government minister and the regulator’s acting chief executive both addressed an industry forum on the Financial Advice Market Review (FAMR), explaining what the implications of the Review might be for the financial advice market.
Economic Secretary Harriet Baldwin MP began by acknowledging that the financial advice sector “works well for wealthier customers,” before going on to say “those without significant wealth have an ‘advice gap’.” She made reference to the average hourly fee charged by an adviser being £150, and that cases could require as much as nine hours work.
Ms Baldwin said the Government would be taking forward all 28 recommendations made in the FAMR report. She firstly said that the Government will be consulting on changing the definition of financial advice so that it only applies to cases where a personal recommendation is made.
She promised that the Pensions Dashboard – a facility that allows clients to view all of their pension provision in one place – would be available by 2019.
Referring to the cost of advice, she said that the Government was consulting on allowing clients to access up to £500 of their retirement savings early in order to pay the advice fees, and also that the tax exemption for employer arranged-pension advice will rise to £500.
Ms Baldwin also referred to the proposed replacement of the Money Advice Service (MAS) with a new money guidance body. Advisers may be cheered by the news that this new body will not have a marketing budget, suggesting that firms will not pay as large a levy to fund it as they do with the MAS.
Tracey McDermott, Acting Chief Executive of the Financial Conduct Authority (FCA), made reference to the ageing population, and the new pension freedoms, as drivers for conducting the Review, in addition to the perceived cost of financial advice.
Like Ms Baldwin, she made reference to the tax breaks on employer-sponsored advice, the proposed changes to the definition of advice and the pensions dashboard. However, much of her speech concerned new arrangements to facilitate the provision by firms of automated advice (or robo-advice), and she announced that the FCA’s Advice Unit, which she said “will support the development of automated advice tools that can help provide low cost, high quality advice to mass-market consumers on investments, pensions and protection,” would be up and running by May 2016.
Ms McDermott also spoke of the review of the Financial Services Compensation Scheme (FSCS) that the Review recommended. The FCA will conduct bilateral meetings and hold industry working groups, followed by a formal consultation, as it examines proposals for alternative ways of funding the FSCS, such as risk-based levies and reform of the existing funding classes. FSCS levies are currently having a major impact on advisory firms’ profits.
She also explained to the audience why the FAMR rejected calls for a long-stop, which would have allowed firms to refuse to deal with complaints from clients made concerning advice given 15 years or more previously. She said that the Financial Ombudsman Service had only received 216 complaints in the last financial year that concerned advice given more than 15 years ago, and that only 30% were upheld, and thus suggested that the benefits to the industry of a long-stop would be minimal, while the detriment to individual clients could be considerable.
The FCA chief executive commented:
“It is crucial we strike a balance here – between ensuring firms are willing to offer advice in good faith, knowing that if it is professional and suitable they will not be exposed to costs in the future, but also ensuring appropriately high levels of consumer protection, and making those protections clear and tangible, in order to inspire public confidence in the advice sector.
“In light of this, we decided we should not recommend imposition of a longstop.”
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