The Treasury’s mass-market advice review

Some corners of the financial advisory community have responded to the joint Treasury/FCA review of the advice market with suspicion, suggesting it could devalue what advisers bring to the table. 

Providers will welcome the terms of reference of the review, launched by economic Secretary to the Treasury Harriett Baldwin, which speak the language of those who have been calling for a relaxation of the regulatory framework to allow greater non-advised distribution.

For workplace advisory firms, such a relaxation would create a new opportunity to talk to lots more people about their retirement and other financial plans.

The review is clearly pointed at those not currently being served by advisers, addressing the advice gap for those ‘who do not have significant wealth’, the regulatory barriers to giving advice, and crucially ‘the interplay between the regulatory framework for advice and the role of the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) in redress’. It will also consider ‘safe harbour’ regulatory carve-outs, although does not specify whether this relates to default pension funds.

Providers see the review as essential to addressing the new pensions paradigm. Aviva head of policy, retirement solutions John Lawson sums up the problem in a sentence. He says: “We need more ‘buyer beware’ and less FOS and FSCS.”

He adds: “We are looking for something between full advice and information only. Providing anything more than information only is hugely costly and it is not possible to service the customers no longer being served by advisers – the business model doesn’t work. There is room to interpret Mifid in a way that allows you to create a more amenable advice regime – the Government can do it if they want.”

The review’s initial evidence gathering will request examples of problems in obtaining advice in the mortgage and GI markets as well as across investments, savings, pensions, and retirement income products. The review will narrow down to consider those areas where the advice gap is most acute. It will also seek evidence from consumers about the barriers they face in seeking advice; the value they place on it and how easy it is to understand where advice can be found and what it means.

Initial work and evidence gathering will be undertaken over the summer with a view to producing a consultation document in autumn 2015. The consultation exercise will close by end 2015 with a view to producing proposals ahead of Budget 2016.

The review will be led by Tracey McDermott, who takes over as acting CEO of the FCA on 12 September, and Charles Roxburgh, director general of financial services at HM Treasury (HMT), as co-chairs.

The review will have a separate expert advisory panel led by Nick Prettejohn, chairman of Scottish Widows Group, and will comprise around 12 to 15 senior figures representing financial services providers, financial advisors and consumer representatives.

McDermott says: “Ensuring that people have the appropriate information and advice in order to make important financial decisions is a priority for the FCA. Changes in the rules around mortgages and the introduction of the new pension freedoms mean that more people than ever before are looking for or are in need of financial advice.” 

NAPF chief executive Joanne Segars says: “Whilst we welcome the review’s focus on providers, it’s also vital to the success of the review that pension schemes are included in its remit. Workplace pension schemes play a huge role in steering their members towards the best quality advice and guidance, and we call on HM Treasury and the FCA to work with us in the coming months to consider how workplace pension schemes can play an important role in improving savers’ access to financial advice and delivering these new pension freedoms.”

Intelligent Pensions managing director Steve Patterson says: “An area that needs to be tackled is that advice costs money but people obviously want it for free.  There is also a lack of clarity around the requirements for simplified and focused advice and a lack of communication of these options to consumers.  The FCA’s Finalised Guidance to firms (FG15/1: retail investment advice) is about as clear as mud, and is hardly able to be communicated in a fashion that’s likely to gain any public interest at all. The FCA needs to step up to the plate on this.”

Old Mutual Wealth director Steven Levin says: “There will be huge benefits for the future prosperity of UK consumers if the Government and financial services industry can work together to create a legislative environment that allows financial planning firms to grow while also encouraging consumers to explore the advantages of taking financial advice.”

Review aims 

  • a package of reforms to:
    • empower and equip all UK consumers to make effective decisions about their finances
    • facilitate the establishment of a broad based market for the provision of financial advice to all consumers
    • create an a regulatory environment which give firms the clarity they need to compete and innovate to fill the advice gap
  • a set of principles to govern the operation of financial advice
  • measures to ensure standards of behaviour for firms within all types of financial advice markets are in accordance with those principles
  • proposals as to whether the regulatory perimeter for financial advice should be amended, taking into account European legislation
  • an examination of the role that might be played by regulatory carve-outs such as a so called safe-harbour
  • a consideration of the proportionality of rules and their impact on affordability and availability of financial advice and products
  • indications of the resources needed for implementation of these proposals
  • a framework for evaluating how successful reforms have been in closing the advice gap, post implementation