Government and FCA reveal plans to plug the advice gap

30 Mar 2016

Last month the Financial Conduct Authority and the Treasury published their long awaited Financial Market Advice Review (FAMR). It recommended a broad swathe of 28 changes to the UK’s financial advice market aimed at addressing concerns about the affordability and accessibility of financial advice and guidance, including amending the definition of financial advice and paving the way for automatic ‘robo-guidance.’

FAMR was commissioned against a backdrop of evidence that “a swathe of Britain is worryingly ignorant about money”, with a fifth of Britons unable to read their bank statements and around half of consumers thinking that pensions are ‘difficult to understand.’ At the same time typical fees for financial advice average £150 an hour, meaning that a large number of consumers are underserved by the financial service industry. The associated ‘advice gap’ has serious consequences for the UK’s financial resilience and security at a time when shifting employment patterns and a changing pensions landscape mean that more and more of us are facing ever more complex financial decisions.

Making advice more affordable

FAMR included a range of proposals aimed at making advice more affordable. Among its most eye-catching was the recommendation of ‘fully automated advice models’, inevitably dubbed ‘robo-advice’, for those who cannot afford human help. The FCA committed to launching a unit in order to help firms develop these services and offered reassurance that they would not be subject to existing regulated financial advice rules.

The report also called for a clear delineation between advice, involving a personal recommendation, and guidance, cutting some of the regulatory red tape for firms offering guidance only services. It called for the Treasury to consult on amending the definition of regulated advice so that it is based upon a personal recommendation, while the FCA should consult on offering new guidance to firms offering such non-personalised service in order to help them deal with areas of uncertainty.

Making advice more accessible

Several proposals in the report were designed to help consumers engage more effectively with advice including calling for employers to take a more active role in promoting their employee’s financial health and supporting them to understand their choices. A suggestion for the treasury to improve tax exemptions for employer arranged advice was taken up in George Osborne’s budget the following week, with an announcement that the amount that employers can contribute tax free to advice would increase from £150 to £500.

Also implemented in the budget were FAMR’s recommendations that people be allowed to access a lump sum from their pension pot up to ten years prior to pension age to ensure they were able to access pre-retirement advice.

Liabilities and Consumer Redress

A section designed to clarify the way in which the Financial Ombudsman Service deals with consumer complaints called for the body to publish more data on its complaint uphold rates, but rejected the implementation of the ‘longstop’, a proposed 15-year limit on financial advice liability, which it concluded would not be in the interests of consumers.

The report has been welcomed in some quarters. The Citizen’s Advice Bureau commented: “For too long price has stood in the way of people accessing the advice they need. The FAMR recommendations to broaden the advice options available, such as paying for advice on specific issues like ISAs and using technology to provide advice, will help to make advice more affordable”. Anthony Browne, Chief Executive of the British Banker’s Association said: “This review will help make it easier for banks to offer customers the help they need so they can take informed decisions and better manage their money.”

But responses from the financial advice industry were more lukewarm. Nick Hungerford, CEO of online investment manager Nutmeg, welcomed the support for automation and a review of the definition of advice but was “sorry not to have seen more in the review about transparency on fees and charges”. Others criticised what they saw as FMRA’s lack of bold action. Nick Bamford, executive director of Informed Choice and former chairman of the Society of Financial Advisors asked: “Does this change anything? Changing the definition of advice, maybe reviewing how the FSCS works and using your pension to pay for your advice. Am I missing something?

Everytime there’s a chance to do something radical and really shake up how people do things it is missed. We want something radical, this is a consultation basically saying nothing” he told