Large numbers of British investors are still not receiving adequate financial advice, in spite of, and partly because of, measures introduced recently aimed at boosting advice standards, a report issued today has found.
Although a 2013 ban on UK financial advisers taking commissions from product providers – contained in a package of changes to advisory regulations known as the Retail Distribution Review – was widely seen as a breakthrough in terms of making the market fairer, the result is that fewer advisers are operating at the lower end of the marketplace, and growing numbers of individuals are receiving no advice at all, the report found.
It urged the UK regulatory authorities to consult on ways to make it easier for advisers to offer guidance to consumers, and to encourage the development and implementation of so-called “robo-advice”, which makes use of algorithms rather than human advisers to help individuals to choose the investments and other products that are best-suited to their needs.
In a statement, the FCA said the review had found “that there is a clear need for intervention by the regulator and the government to help both consumers and industry benefit from new and more cost-effective ways of delivering high quality advice and guidance”.
The FAMR recommendations, it added, would “help to address current concerns about the affordability and accessibility of financial advice and guidance, particularly regarding the ‘advice gap’”.
The review committee was co-chaired by director general of financial services at HM Treasury Charles Roxburgh and acting chief executive of the FCA Tracey McDermott.
At midday on Monday, many industry executives were still studying the detail of the FAMR report. Some said the argument that more research into the matter was needed suggested an unwillingness to take action, or else an acceptance that the issue of providing good quality and unbiased financial advice to ordinary investors defied easy answers.
Malcolm McLean, a senior consultant at the London-based actuarial and pension consultancy Barnett Waddingham said that although the report “makes some very interesting and potentially far reaching recommendations about changes to the current advice and guidance regimes, which I think we all agree are not currently always working in the best interests of consumers”, it came up short in other areas.
“Disappointingly as far as I can see, the review doesn’t take us any further in ensuring that consumers fully understand the difference between ‘guidance’ and ‘advice’, although it does call for the definition of ‘regulated advice’ to always include a personal recommendation from the adviser – something I have always believed was an inherent part and outcome of any quality advice service anyway.
“In relation to the problem of encouraging consumers to pay for advice – something which has probably increased as a barrier since the RDR – the report suggests that those nearing retirement age should be allowed to access their pension pots early (i.e. under age 55) to pay for that advice. Whether that will make a significant difference is debatable but it is probably worth a try.
“Where the review does score in my view is the clear support and backing it gives to the use of new technology to help make financial advice more affordable for millions of consumers. The FCA is to set up a new advice unit to help financial firms to develop automated programmes to deliver ‘robo-advice’.
“Although this is unlikely to actually be advice as such, it will allow consumers to go on-line, answer some questions, and receive financial help without having to pay for individually tailored solutions – all of which should be positive and will help consumers to better understand the issues and what their next steps should be.
“Overall, in my view the review has clearly recognised many of the barriers that exist in ensuring that consumers get the necessary support in their pension planning, and has come up with some useful pointers to the changes that need to be made and the possible ways forward.
“As ever, the proof of the pudding will be in the eating and whether in due course the quality and take-up of guidance and advice improves significantly and consumers are in a better place as a result.”
To read the report on the FCA’s website, click here.