When I read recent comments from the FCA’s head of advice suggesting that the regulator’s relationship with the advice community was like being a parent for a child who needed to be told what to do at every step, frankly, I was offended.
My experience of the majority of people in the sector is one of maturity, responsibility and integrity. How dare she suggest otherwise?
On reflection, however, she may have a point. Unfortunately, over the past few years the advice sector has acted a bit like a child and waited to be told what to do. We have been on the back foot, simply because we have felt defensive about how our advice might be judged by the regulator. We have not been encouraged to have grown-up conversations with the FCA and, when we have expressed our views in consultations, we have often felt that they were disregarded. The result is that many in our profession have put up defensive barriers.
I would like to issue a challenge to both the regulator and the regulated: let’s acknowledge that we all have a single aim – to deliver good advice at a justifiable cost – but appreciate that our interpretations will inevitably differ.
Let’s examine some of these differences. First, the ‘good advice’ question. The FCA wants us to maintain the highest standards, be open about why we make our recommendations and give our clients reasonable choices. We want that too. In most firms we do it, but we have to structure our businesses to keep the advice process wrapped up in a manageable framework. This means using a central client proposition, based on selected platforms, for the majority of clients. We believe that our proposition will, in most circumstances, be in the client’s best interest and, importantly, be cost-effective.
The question of cost causes the regulator the most concern. Improvements in transparency are an important part of the good that has come from the FCA. However, I often feel the regulator does not understand the spiralling underlying costs of running an advice business.
‘Profit’ should not be a dirty word in our profession; we have to make profits in order to grow. We have seen firms trying to undercut fee levels and failing, leaving clients high and dry.
I desperately want the regulator to take a step outside its public-service box and accept the commercial constraints on advisers, considering not only fair client outcomes but also the sustainability of the sector. Without us, clients are uninformed and in danger of making unsafe decisions. Telling us that clients should carry out their own investment transactions to save costs, for example, is perilous both for clients’ financial health and for the future of the advice sector.
As advisers, we must acknowledge that the FCA plays a critical role in defending the client’s corner. For its part, the FCA needs to provide a regulatory framework that is equally consistent and fair, giving the advice sector the support it needs to provide an exemplary service within a profitable business.
Can we reconcile our differing versions of providing good advice? I think we can, but only if we have a serious commitment on both sides to grown-up conversations between intelligent equals who are prepared to listen to each other.
Carl Lamb is director of Smith and Pinching