Better tax breaks for financial advice, early access to pension pots to pay for advice and clearer signposting of guidance and ‘streamlined advice’ are key recommendations from the Financial Advice Market review published today.
Workplace advice is central to a 28-point plan for an overhaul of the financial advice sector published by the Treasury and FCA today, with the FAMR review recommending an increase in the £150 employer tax break for financial advice, greater clarity around behavioural nudges that do not constitute advice and the ability to access a small part of a pension for pre-retirement advice.
The FAMR review also proposes making the regulatory landscape clearer for firms so that they can deliver high-quality guidance services for consumers who want help in making their own decisions, but rejects the idea of a 15-year long stop after which claims to the Ombudsman could no longer be made.
The review says: “The workplace presents an opportunity to help more people access financial guidance and increase take-up of financial advice. However, some employers are wary of offering help with financial matters to their employees due to regulatory liability concerns…FAMR’s recommendations seek to clarify the help that employers can provide without being subject to regulation and to improve incentives to employers to support their employees’ financial health where appropriate.”
The report recommends that HMT ‘champions and plays a convening role in industry’s development of a pensions dashboard’ and ‘explores options to allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice’.
The report also calls for the Financial Advice Working Group to work with employers to develop and promote a guide to the top ten ways to support employees’ financial health.
FCA acting chief executive Tracey McDermott said: “This review has taken place against the backdrop of social and demographic changes which have led to an increasing need for individuals to take more responsibility for their own financial future. But we know that people often find it difficult to engage with financial matters and we need to make it easier for them to do so.
“The package of reforms we have laid out today will help increase both the accessibility and affordability of the advice and guidance to ensure that consumers get the help they really need when they really need it.”
Treasury director general, financial services Charles Roxburgh said: “At a time when more and more people are seeking financial advice and guidance, we have set out how we can deliver a vibrant financial advice market that works in the interest of all consumers. Our recommendations will increase the amount of affordable, high quality financial advice that is widely available so it’s easier for people to access it at every stage of their lives.”
F&TRC director Ian McKenna says: “This is all very positive for the corporate adviser sector. The improvement on the tax exemption for advice and the ability to access pension pots to pay for advice sound like the blueprint for financial advice as an employee benefit. I cannot remember anything coming out of the Treasury in the last 30 years that has given so many benefits to the advice community.”
The FAMR’s 28 recommendations
- To support progress over the next 12 months, members of the FAMR Expert Advisory Panel should form a Financial Advice Working Group, together with members of the FCA Consumer, Practitioner, and Smaller Business Practitioner Panels.
- HMT should consult on amending the definition of regulated advice in the existing Regulated Activities Order (RAO) so that regulated advice is based upon a personal recommendation, in line with the EU definition set out in the Markets in Financial instruments Directive (MiFID).
- The FCA should consult on new guidance to support firms offering services that help consumers making their own investment decisions without a personal recommendation. This should include a series of illustrative case studies highlighting the main considerations firms need to take into account when developing such services and dealing with specific areas of uncertainty identified during the Review.
- The Review recommends developing a clear framework that gives firms the confidence to provide streamlined advice on simple consumer needs in a proportionate way. As part of this, the FCA should produce new guidance to support firms offering ‘streamlined advice’ on a limited range of consumer needs. This should include a series of illustrative case studies highlighting the main considerations when developing such models.
- As one of the measures to help develop a simple and clear advice framework, the FCA should consult on modifying the time limits for employees to attain an appropriate qualification in the FCA’s existing Training and Competence sourcebook (TC). This will give firms more flexibility to train a new generation of advisers by allowing employees to work for up to four years under supervision to obtain an appropriate qualification and experience.
- The FCA should consult on guidance about the cross-subsidisation rules in relation to the interpretation of ‘long term’ and the flexibility allowed.
- HMT should ensure in transposing and implementing MiFID II that, while meeting obligations under EU law, it does not undermine the FCA’s ability to follow through with the proposals which are designed to give firms the confidence to deliver streamlined advice.
- The FCA and industry should continue to work together with the aim of bringing about improvements to suitability reports, reducing their length, where appropriate, and the time firms spend preparing them.
- The FCA should build on the success of Project Innovate and establish an Advice Unit to help firms develop their automated advice models.
- The FCA should consult on guidance to provide clarity on the standard types of information required as part of the fact find process. In addition, the guidance should also set out key considerations for verifying a fact find that has been performed by third parties.
- The FCA and The Pensions Regulator (TPR) should develop and promote a new factsheet to set out what help employers and trustees can provide on financial matters without being subject to regulation.
- The Financial Advice Working Group should work with employers to develop and promote a guide to the top ten ways to support employees’ financial health.
- HMT should explore ways to improve the existing £150 income tax and National Insurance exemption for employer-arranged advice on pensions.
- HMT should explore options to allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice.
- The FCA should take steps to help ensure that firms and advisers are aware of the existing flexibility in the rules on adviser charging.
- HMT should challenge the industry to make a pensions dashboard available to consumers by 2019, bringing together industry and consumer representatives to help them set direction and drive progress.
- The Financial Advice Working Group should publish a shortlist of potential new terms to describe “guidance” and “advice”, with the final choice of words and approach to implementing them to be confirmed after market research and consumer testing.
- The Financial Advice Working Group should lead a task force to design and test a set of rules of thumb and nudges.
- HMT should assign the continuing responsibility for the rules of thumb and nudges to an appropriate body with financial capability expertise. This body will be responsible for updating the rules of thumb and nudges and encouraging the use of them by employers, government agencies and charities.
- The FCA regularly undertakes funding reviews of the Financial Services Compensation Scheme (FSCS), and FAMR recommends that the 2016 FSCS Funding Review, should specifically explore risk-based levies, reforming the FSCS funding classes, and more extensive use of the FSCS credit facility. The review should explore the merits, risks and practicalities of alternative approaches.
- Following its review of FSCS funding, in light of evidence received as to the impact of the professional indemnity insurance (PII) market on FSCS funding, the FCA should consider whether to undertake a review of the availability of PII cover for smaller advice firms.
- The Financial Ombudsman Service should consider undertaking regular ‘Best Practice’ roundtables with industry and trade bodies where both sides can discuss relevant issues such as the evidence used when considering historic sales and suitability requirements.
- The Financial Ombudsman Service should publish additional data on its uphold rates, specifically around cases where advice was given more than fifteen years before the complaint was made, and a breakdown of financial adviser uphold rates by product. The Financial Ombudsman Service should consider the best way to do this as part of its review into its approach to publishing data more generally and update its stakeholders later this year.
- The Financial Ombudsman Service should consider whether to establish a more visible central area for firms on its website by summer 2016, bringing existing resources (e.g. summary of approach, technical guidance notes, case studies etc) together in one place to help advisers.
- The report of the Financial Ombudsman Service’s appointed Independent Assessor should be expanded to include a more in-depth analysis of the cases they consider and identify potential areas for process improvement from 2017.
- The FCA should not introduce a longstop limitation period for referring complaints to the Financial Ombudsman Service. As part of the review in 2019, the FCA and HMT will consider any ongoing trends and the impact of the Financial Ombudsman Service’s complaints data relating to advice on long-term products.
- The FCA and HMT should work together over the next 12 months to develop an appropriate baseline and indicators to monitor the development of the advice market. These should then be tracked on an annual basis and published on the FCA website.
- The FCA and HMT should report jointly to the Economic Secretary and FCA Board, 12 months after the publication of this document, on the progress made towards implementation. In 2019, both organisations should conduct a review of the outcomes from FAMR.