Informed Choice responds to Financial Advice Market Review
In our response to the HM Treasury and Financial Conduct Authority (FCA) Financial Advice Market Review, Informed Choice has highlighted the growing demand for professional advice and a need to reduce the regulatory cost burden to make advice more affordable to consumers.
We explained that consumer demand for professional financial advice continues to grow, driven by an ageing population, with retiring post-war baby boomers reaching retirement age in growing numbers and requiring advice on complex planning matters.
We expect to experience a continued growth in demand for professional financial advice as wealthy baby boomers continue to enter retirement over the next 10-15 years and then managing their complex financial affairs throughout longer retirements.
There will be dramatically rising demand for professional financial advice on the payment of long-term care fees, as result of the UK population living longer but not necessarily healthier lives.
We expect to see rising demand for advice from other sources, especially from millennials who are digital natives and often prefer an advice service delivered on their own terms, rather than traditional face-to-face advice.
Current technology is better positioned to deliver online product sales, rather than online advice or ‘robo-advice’ as it is sometimes misleadingly called.
It is important that consumers understand the service they are receiving and not lead to believe an online product sale delivered with information or guidance constitutes professional advice tailored to their personal objectives.
Where online services such as these are delivered, we believe they should be available at a significantly lower cost than professional advice.
Considering the supply of professional advice, we highlighted a steady supply at present which we fear will reduce in the future.
In our local area, we have witnessed a steady supply of financial advice since the introduction of the Retail Distribution Review in 2012.
We have found that older advisers tend to work for much longer than in comparable professions, deferring retirement until later in life.
Whilst there is a real and alarming shortage of younger advisers entering the profession, this does not yet seem to have reduced the supply of advice, although we expect it to do so in the future.
In response to a call for evidence on a recent shift away from sales based on professional advice, we described how we see this shift taking place.
There has been a shift from product sales based on the identification and solving of a specific need to the construction and monitoring of comprehensive financial plans.
This can still result in a product sale, to implement the actions identified by the Financial Planner, but does represent a cultural shift away from product sales.
This is not necessarily symptomatic of a growing advice gap in the UK, although High Street banks have largely exited the advice market in recent years as a result of higher standards for qualification and fee disclosure.
We believe this shift from sales to professional financial planning is beneficial for consumers and the reputation of the UK advice market.
Perhaps the most important thing to be addressed by the Financial Advice Market Review is the growing and unpredictable cost of direct and indirect regulation, which is a big factor in making advice unaffordable for many consumers.
We are particularly concerned about the high levels of FSCS levies in recent years, with their seemingly unfair and unpredictable allocation to professional advisers.
There is currently duplication of consumer protection through prudential requirements, mandatory professional indemnity insurance and funding the FSCS to compensate the customers of failed financial firms.
Better segmentation of advisers and distinction from those responsible for product manufacturing and distribution would result in a lower cost for supplying advice.
On the subject of an ‘advice gap’ in our submission to HM Treasury and the FCA, we sought to clear up confusion over the definition.
Our definition of an advice gap is a lack of supply to meet rising demand for professional face-to-face advice.
This is not however the commonly accepted definition of an advice gap, which appears to be more focused on the sale of financial products to consumers through banking and insurance company channels.
Based on this more accurate definition, advice gaps currently exist in earlier stages of life, where consumers are accumulating assets. Fewer advice gaps exist for consumers who have already accumulated wealth in later life.
Also within our response, we encouraged HM Treasury and the FCA to focus on addressing access to advice for those consumers accumulating wealth.
We did not support calls for a long-stop for advice, which we believe is a red herring.
Consumers who pay for long-term advice have a right to expect that advice to be suitable and tailored to their needs.
It can often take a significant amount of time for unsuitable advice to be discovered, which makes the introduction of a long-stop for advice potentially detrimental to consumers.
Consumers are already very well protected by the UK regulatory regime, with advice firms required to meet prudential standards, hold professional indemnity insurance and participate in the FSCS (albeit with an urgent need to address the funding of this compensation).
It would be better for the Financial Advice Market Review to focus on unregulated advice and products, to ensure that consumers are always well protected by the regulatory regime.
We would support a move to make illegal all cold calling in respect of pensions and investments, and to ban the sale of any unregulated investment product to UK consumers.
We look forward to seeing how the Financial Advice Market Review progresses in 2016 and what positive impact it can have for consumers of financial advice.