As the FCA regulates and supervises more than 50,000 firms providing financial products and services in the UK, its mission to oversee the industry and ensure good practice is something that should be welcomed by professionals and consumers alike.
Now, the FCA in association with HM Treasury plans to review its FAMR joint initiative in 2019 with the aim of assessing its effectiveness so far and looking at areas in which it might be improved.
Affordable and accessible advice
In June 2018, the Minister of State at the Department for International Development Lord Bates argued in a written answer to Parliament that the government has “acted to support the development of a market that provides consumers with affordable and accessible pensions advice,” and that was in keeping with why the FAMR launched in 2015.
Published in 2016, the FCA and the Treasury’s subsequent joint FAMR report introduced 28 market suggestions that were intending to close the advice gap and achieve significant improvements in the accessibility and affordability of financial advice for people of all ages.
When the measures were initially announced, many advisers criticised them, and this resulted in the presentation of a fifteen-year long-stop being ruled out, alongside a suggestion that what comprises regulated advice should be redefined. The effects on the way that a search for qualified leads for financial advisers could be carried out were uncertain at the time, and even now there is some confusion, which is partly the reason for the upcoming review.
However, in his letter to Parliament, Lord Bates said that the review recommended solutions to improve the accessibility of affordable advice in the financial sector.
“These included setting up an advice unit by the FCA to provide firms developing large-scale automated advice models with regulatory support to help bring these to the market more quickly,” he added.
The FAMR review was prompted by the changes in the way that people can access and manage their pension pots, and so the issues surrounding the review will be of particular interest to you if you are an adviser looking for pension leads.
One of the problems that the FAMR aimed to fix regarding the “advice gap” was that of pricing and fees. An added complication to any possible solutions was seen in the rise of so-called “robo-advice”, using automated systems as opposed to personal interactions.
“Automated advice has the potential to provide affordable advice to the mass market, with some existing models charging a fixed fee of below £500,” Lord Bates explained.
In February of this year, FTAdviser reported that 50 per cent of the companies in the first wave of the regulator’s advice unit had the intention of launching a low-cost service or had already done so.
LEBC’s Director of Public Policy Kay Ingram, went on record to agree with the FCA’s timeline for FAMR recommendations to be put into effect.
“Given all the changes taking place in the provision of regulated financial advice; the adoption of bionic advice solutions, senior managers regime, MIFID II, defined benefit transfer rule changes, development of mid-life counselling services and initiatives such as the pensions dashboard, the FCA is probably right to pause before finalising this market review,” she said.
One point where she disagreed with Lord Bates and the FAMR was on the question of automated advice and whether it would provide the answer to filling the advice gap.
Ingram said: “Encouragement of bionic advice solutions is more likely to address this shortfall than continuing to experiment with robo-advice.”
She suggested that robo-advice only confronts the cost dynamic within the advice gap, yet it fails to offer high-quality results that could come from hybrid bionic advice solutions.
With the initiators of the FAMR themselves wondering aloud whether it has achieved the desired impact, and if not, how it could be tweaked, the question of whether or not it is supported in the wider industry is a valid one.
Aegon’s Pensions Director Steven Cameron recently argued that new research from the pension provider revealed that financial advisers are largely supportive of the FAMR measures. Cameron also pointed out that in spite of this support, the majority of advisers do not think that the FAMR has achieved its stated aims by applying the new measures.
“When it comes to how effective these have been in practice, most advisers are far less positive, which is disappointing if not surprising. Just one in seven believe that FAMR’s key measures are helping to close the advice gap,” he said.
“There’s clearly an opportunity for the industry and the FCA to keep working together to identify how to turn a major opportunity into widespread practical benefit and some of that could start earlier than 2019,” Cameron added.
As the process for the FAMR fully began in 2015, it has already had quite enough time to show impacts, either positive or negative. The overall picture has been muddied by further changes to laws, regulations and processes, which means that the regulatory regimes will be putting extra pressure on those searching for pension transfer leads.
Therefore, some are asking whether the FCA needs to investigate the success of the FAMR at all; others are saying that it should be doing so now; and another vocal section of the industry is thinking that any such move can wait a little longer.
Granite Financial Planning’s Managing Director Paul Gibson thinks that “given the regulatory workload at the moment 2019 seems a reasonable timeline given we are almost halfway through 2018”.
“It is important to reach the right conclusions rather than rush this through and I will be interested to see the outcomes when the review is completed,” he added.