The Financial Conduct Authority has published an evaluation of the impact of two of its recent initiatives – the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR).
RDR, where most of the requirements came into force in 2012, required investment and pension advisers to obtain a suitable Level 4 Diploma qualification. It banned advisers from receiving commission for investment and pension advice and imposed new disclosure rules.
FAMR, commissioned in 2015, sought to improve consumer access to financial advice.
The FCA says it has observed these positive developments:
- 1 million UK adults (6% of the total) received professional financial advice in 2017, but this has since risen to 4.1 million (approximately 8%)
- 56% of those who have received advice in the 12 months prior to the review said they were satisfied with that advice, up from 48% in 2017
- Total adviser numbers have risen 4% between 2012 and 2019, from 35,000 to 36,400
- More firms are developing automated advice models. Estimated assets under automated advice models rose by a factor of eight between 2016 and 2019, from £400 million to £3.2 billion. 19% of consumers say they are now aware of automated advice services, compared to just 10% in 2017. 32% of consumers with £20,000 or more in investible assets have indicated they would be prepared to take digital advice in the future
However, the regulator says the following challenges remain:
- Many consumers are still holding large sums in cash and are not receiving advice that could enable them to make better investment decisions. 54% of UK adults with £10,000 or more of investible assets (around 8.4 million people) did not receive any formal support to help them make investment decisions over the last 12 months. Of those consumers with more than £10,000 of investible assets, 37% did not have any investments at all and were holding their assets entirely in cash, and a further 18% were holding more than 75% of their investible assets in cash
- Of those consumers who hadn’t received professional financial advice in the last 12 months, 67% said it was because they didn’t think they needed any advice. Only 11% said they hadn’t sought advice because they had concerns over being able to afford it
- There remains significant clustering around certain service types and price points
- Greater innovation in services could help drive greater competition between firms across the market
- More tailored guidance services and simpler advice services could help to attract more consumers receive the assistance they require
(The evaluation exercise was completed prior to the Covid-19 pandemic)
Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA, said:
“We want consumers to have access to high-quality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions.
“Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers. We will use the evidence base this evaluation has given us, along with the responses to our Call for Input on consumer investments, to shape our work to improve the market.”