25 Jan 2018
2018 looks like being another exciting year for the financial advice sector, full of change, challenges and opportunities. As part of that picture, the FCA released its latest Policy Statement on FAMR in early December.
Whilst not a great deal has changed from the proposals made in CP17/28, the Policy Statement nevertheless makes interesting reading as the FCA's comments on the feedback received from firms indicates how aligned and supportive firms as a whole are with the FCA's proposals – or at least the firms who found time to respond.
It worth bearing in mind that FAMR was designed to look at regulatory barriers in the financial advice sector, and how to overcome those. The hope is that if this is done well it enables more firms to enter the advice sector and plug the "advice gap" as well as opening up the non-advised part of the market for authorised firms in a way that allows them to be comfortable with the regulatory risk sitting around such models.
Some of the most interesting points arising out of the Policy Statement are as follows:
- Firms appear to still be a little wary of providing non-advised guidance and having certainty over what standard they will be held to by the FOS if complaints ae subsequently made by clients about that service. There is a "leap of faith" issue here – the FCA have made it clear that (as you would expect) firms giving non-advised guidance will not be held to the same standards as firms giving personal recommendations. It also states however that the FOS will be able to decide such complaints based on what is "fair and reasonable" – it is that phrase which can strike fear into the hearts of firms, as it is vague and open to interpretation.
One has to hope that the FCA will work closely with the FOS to ensure that the correct standards are applied. If the FOS do not respect the dividing line between guidance and advice and the different standards that should apply, it will go a long way to ensuring that the objectives of FAMR in opening up the advice market will not be achieved. Whilst the FCA and FOS are separate organisations, they clearly need to be consistent on this issue to bring confidence to the market.
- There was also some feedback from firms who considered that individuals giving guidance should be subject to the same training and competence requirements (including qualifications) as those who give advice. The FCA have, correctly in my view, rejected that assertion. Given that FAMR is designed to remove regulatory barriers in this market, to apply the same T&C requirements to non-advising staff would go against that objective. Firms still have overriding duties to ensure that staff are competent for the role that they perform and to have appropriate systems in place to ensure that the firm complies with its regulatory obligations – it is appropriate that the FCA allows firms to determine the correct approach on guidance without imposing over burdensome, specific requirements in this area.
- The FCA's Advice Unit will clearly have an important role to play in giving firms the confidence to bring new propositions to the market. The FCA appear to have made a good start with the case studies published which generated a significant amount of feedback. It appears that several respondents asked if the FCA could be more prescriptive on what information it is necessary to collect about a client's financial objectives if they do not articulate a specific goal. I will probably get shot down for this, but the FCA, again correctly in my view, indicated that they would not be that prescriptive and that it was for firms to determine, in any particular circumstances, what information may be relevant to the personal recommendations being given. It would not be helpful or even practical for the FCA to try to prescribe exactly what information is relevant in particular circumstances – qualified and experienced advisers should be confident enough to judge what information is relevant for any particular client.
- Finally, the FCA returned to the issue of insistent clients. I have written about this before but the Guidance issued by the FCA in this area is helpful and reasonably clear – any insistent client process must start with the client going through a full advice process that ends with a personal recommendation that is subsequently rejected by the client. If any firm tries to circumvent that process, then regulatory bear traps await. The challenge of course is whether a client will agree to pay for that process when they think that they already know what they want to do at the outset. The only way to avoid all risk here is not to deal with insistent clients, but there is at least some clarity on how to deal with such clients if you wish to do so.
I am feeling very positive about the potential for positive developments in the financial advice market in 2018 (well, it is only the second week in January at the time of writing…..). Even the most cynical of advisers will hopefully be able to recognise that the FCA are making some genuine and useful attempts to encourage innovation by firms by addressing some historical areas of difficulty. Let's see how the rest of the year pans out!
This article first appeared in Money Marketing 24th January 2018