14th March 2016
Millions of consumers could have better access to affordable financial advice and guidance that meets their needs at every stage of their lives as a result of recommendations from the Financial Advice Market Review (FAMR) published today.
The review, a joint initiative between the Financial Conduct Authority (FCA) and HM Treasury has concluded 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 financial advice and guidance.
It is looking to build on improvements and changes made to the financial advice industry brought about by the Retail Distribution Review (RDR), which aimed to raise the standards of professionalism across the financial advice market.
The FCA said the FAMR recommendations would help to address current concerns about the affordability and accessibility of financial advice and guidance, particularly regarding the ‘advice gap’.
The review has urged that changes need to be made about how financial advice is defined. It has suggested a new advice framework to help firms best meet the needs of consumers. The report makes a range of recommendations aimed at ensuring firms are able to provide more affordable advice for more consumers.
Acting FCA 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.”
Key proposals from the FAMR review include allowing early access to pension pots to pay for advice costs, the creation of clearer boundaries between advice and guidance to facilitate firms’ delivery of services, in particular, to strengthen the personal recommendation element of advice. It also wants to help investors to make good decisions without going through a full advisory process and to see ongoing measurement and tracking of the advice market.
Commenting on the review Hargreaves Lansdown head of retirement policy Tom McPhail said he believes the FCA and the Treasury have done an “excellent job of deconstructing the myriad ways in which the investment industry has become unable to serve all its potential customers effectively”.
He added: “For many, it had become an increasingly dysfunctional system with providers withdrawing from the market and consumers not getting access to the services they required.
“The most critical proposal is to simplify and clarify the boundary between advice and guidance; it should allow firms more latitude to deliver useful guidance without having to charge an advisory fee or worry about inadvertently straying into giving personalised advice.
“Overall this is good news for investors; over time they should find the investment industry more accessible.”
Pete Horrell, managing director, UK, Fidelity International also welcomes “the positive steps set out today by the findings of the Financial Advice Market Review”.
He said: “Good advice is critical to making the right long term financial decisions but there is no one size fits all. Putting more thinking to a better definition of financial advice and creating clarity on what constitutes generic assistance and that of a personal recommendation is a great step forward.”
Richard Rowney, managing director, life and pensions, at LV= said: “We’re pleased the Government and regulator will take action to address the advice gap. Nearly half a million people retire each year without taking advice and we believe this could lead to a ‘mis-buying’ scandal with people making hugely important financial decisions without adequate support.
“It’s good the review has recognised the current different levels of advice aren’t working for consumers and it is absolutely right to recommend a single definition for advice to end the confusion.
“It’s vital that everyone can access affordable, regulated advice to help to make the most of their hard-earned savings, and we expect these changes to be introduced without delay.”