The Treasury launched a review of the financial advice market at the start of August. It asks the (old) question of how to provide financial advice to mass market consumers, a need that has been put in the spotlight by pension reform and the problems some have had in securing an adviser.
Ask any adviser about the problems they face and you will get a similar answer. Top of the list of concerns will be the cost of regulation and liability, including the soaring cost of FSCS levies; the uncertainty of the facing the FOS; and the lack of a “longstop”. These add to the cost of providing advice and so make it harder to economically serve clients with more modest means.
The debate on financial advice often gets muddled over the use of the term “financial advice”. Sometimes it is used to denote general financial planning and sometimes regulated investment advice.
With wealthier clients there is a significant overlap, but they are not the same thing. I think it interesting that the Treasury defines “financial advice” in a broad sense, including the provision of mortgages, general insurance, pensions and savings. For many mass-market clients, their need for investment advice will be limited, perhaps only relevant to their pension arrangements.
There are different regulatory requirements that apply to recommending a mortgage or insurance product, but there is also something that is more than the sum of the individual regulated activities: financial advice in its broader sense.
If it is divorced from the Mifid suitability requirements for investment advice there may be scope to offer a service with less draconian liabilities attaching to it. If it is recognised (particularly by FOS) that there is no one right solution for people, but a range of outcomes that are good and choice will depend on client preferences, then it may become viable to offer a different service at a much lower cost.
The logic of the RDR points to advice as a service distinct from the sale of products, but the rulebook still regulates product sales. Perhaps it is time for the regulator to recognise that there are two kinds of financial advice.
It is an opportunity to change the framework for advice – I would encourage advisers to let us know your views so we can get it right.
Chris Hannant is director general of Apfa.