In early May, the FCA announced a further review of the RDR and Financial Advice Market Review (the third since 2015) accompanied by a Call for Input.
We support the general consensus that the introduction of RDR, in particular, has had a positive impact on standards of professionalism.
However, it has also had the effect of slowing the number of new advisers operating within the industry and fewer people accessing advice. In other words, an advice gap.
Another contributor to this gap has been the increasing cost of advice in order to cover regulatory and staff costs.
The cost of regulation has, in some areas, been attributed to ‘the cost of doing business well’. However, large numbers of firms struggle to understand the value add for the client with respect to the level of disclosures they have to make, the time it incurs, and the cost ultimately passed on to the client.
More broadly, there is significant cost for smaller firms and new entrants to doing business well, borne out of a need to buy in external compliance support. We also have anecdotal evidence of clients getting agitated about the amount of paperwork that is generated.
With this in mind, we would encourage the FCA to consider how it can assess and monitor the way regulatory initiatives impact directly on the cost of compliance for firms, and its impact on the advice market.
The role of advice has become increasingly critical over recent years. Indeed, many pieces of independent research point to the value of advice in growing savings and investments compared to not taking it.
As we live longer and spend more time out of work, the role of financial planning and the management of the wealth we do have will become even more important – and for that we need a thriving market with many more advisers than we have today.
As consumer needs, technological advancement and social norms change, the service offering for clients will have to adapt drastically. This is a business of long-term planning and it would be naive to assume things do not change. However, this is also a business focused on outcomes, and regulation should reflect this.
The industry is not a homogenous entity. There are no singular processes any firm can undertake in order to streamline its regulatory obligations. There is also a broader issue of an erosion of trust exacerbated by individuals and firms – regulated or not – that have a damaging effect on the reputation of the sector.
If the FCA is serious about closing the advice gap, making advice more affordable and encouraging more people into this market, it needs to consider what role it can play in overseeing a regulatory landscape and implementing a supervisory framework that is effective in stamping out these practices. Its recent tough stance on defined benefit transfers is, as an example, a welcome move.
Liz Field is chief executive at Pimfa