The Financial Conduct Authority (FCA) has identified three main criteria it will use to measure the success of the Financial Advice Market Review (FAMR). These are: Accessibility, Affordability and Quality of Advice. The regulator says it will publish results on its website regarding this on at least an annual basis.
The FAMR was jointly commissioned by the FCA and HM Treasury. It is a comprehensive review aimed at improving consumers’ access to financial advice.
At the same time as it announced the criteria it will use, the FCA also published research showing that 3.2 million people received professional advice on investment matters in the last 12 months. This figure is equivalent to just 6% of the UK adult population. However, the research also indicated that 12.8 million people (around 25% of the adult population) may have had a need for advice, but did not receive it, for one reason or another.
Of those who had taken advice, only 3% made use of automated advice (robo-advice) services.
Cost is widely seen as the biggest factor that puts people off taking advice. Most consumers say they are willing to pay no more than £500 for financial advice, but the average fee charged by a financial adviser is 3% of the initial investment as an initial fee, plus 0.7% of the investment value each year as an ongoing charge. FCA data from its recent suitability review suggested that independent advisory firms charged lower initial fees – an average of 2.81%, compared to 3.57% for restricted advisers. However, independent firms typically charge 0.72% for ongoing advice, whereas for restricted advisers it is just 0.63%. Most smaller advisory firms have opted to remain independent.
The FCA’s research did suggest, however, that most firms do not set out to reject less wealthy clients. For example, of the firms offering pension advice, 82% said that they did not require new clients to have a specified minimum pension pot size before they would accept them. Where firms did have a threshold, almost all of the firms set this at no more than £50,000.
The ability of firms to offer affordable advice may not have been helped by the announcement from the FCA in early July that advisers’ regulatory fees will increase by 4.7%.
The key elements of FAMR are:
The key elements of the review will include:
• Examining the apparent ‘advice gap’ that exists where some consumers wish to receive financial advice but have limited wealth
• The regulatory barriers and other restrictions advisory firms face
• The advantages and disadvantages of using new technologies when giving advice
• Encouraging demand for financial advice, and examining what puts people off receiving advice
28 recommendations were made in the FAMR report, and one example of a change that has already been made is that consumers of any age can now withdraw up to £500 from their pension pot, on up to three separate occasions, in order to pay for professional advice.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.