The Financial Conduct Authority’s (FCA) assessment of the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) will not involve a look into three key areas of the advice sector.
The financial watchdog said in an update that the review will not overlap with evaluations on issues such as:
- Requirements relating to defined benefit pension transfers;
- Changes to the award limits for the Financial Ombudsman Service, including consequential impacts on the professional indemnity insurance (PII) market; and
- Changes to how the Financial Services Compensation Scheme (FSCS) is funded.
The FCA said: “It would not be an efficient use of our resources to focus in this review on areas where there are other FCA projects that are either underway, or have recently been completed in these areas.
“Our work will be informed by these other projects, but we don’t want to duplicate work in these areas. Therefore, we have decided not to include certain issues in our review.”
All the feedback it has received about areas it is not including in the RDR and FAMR review will be used in the other FCA projects.
While there are legitimate cost and duplication concerns, failing to conduct a full review risks leaving gaps in any proposed legislation.
Disappointing
Keith Richards, chief executive of the Personal Finance Society, said he was pleased the FCA was using the feedback in other areas but believes the review should not be divided.
“It is disappointing […] as this needs to be joined up rather than treated separately.
“The Financial Advice Market Review was supposed to identify ways to close the advice gap, including how to remove unnecessary regulatory barriers and cost.
“Post pension freedoms, the demand for face-to-face financial advice is greater than ever but changing the award limits for the Financial Ombudsman Service has increased the cost of regulated advice without considering the conflict with FAMR consumer objectives or a broader solution to both PII and FSCS.
“Over the next few months, the FCA has confirmed they are planning to conduct additional research on the impact of the Retail Distribution Review and Financial Advice Market Review in order to produce a final report in 2020. They will review the impact of the increased ombudsman limit separately to this work.
“I believe this work needs to be joined-up.”
Sensible
But not everyone agrees.
Tom Selby, senior analyst at AJ Bell, added: “With the FCA now reviewing two previous reviews, it is hard to escape the conclusion that regulation is beginning to eat itself.
“That said, it is crucial the advice market continues to work well for investors and the world has changed significantly since the RDR was introduced at the start of 2013. Provided these reviews – and any subsequent interventions – focus squarely on improving outcomes for savers and investors then they should be welcomed across the sector.
“Firms already dedicate significant time and resource complying with regulatory requirements and responding to data requests from the FCA.
“While we accept such costs are part and parcel of ensuring a safe market for investors, avoiding duplication of work is sensible as any unnecessary burdens risk pushing costs up for firms. When this happens, customers will ultimately end up paying through higher charges.”
Themes for review
In May 2019, the FCA issued the review into RDR and FAMR to see if they have both been successful.
RDR was meant to increase transparency in the industry and ensure clients received high quality advice, while FAMR was done to explore ways in which government, industry and regulators could take steps to deliver affordable and accessible financial advice and guidance to everyone.
The UK watchdog has received 57 responses following its request for feedback; from a range of consumer bodies, trade bodies and firms.
Some of the main themes that have emerged so far include:
- Access to appropriate services: A number of stakeholders have said that not all consumers have appropriate access to a wide range of services to help them in their financial planning, particularly those with smaller amounts of money to invest. They said that this problem has worsened in recent years and that regulatory costs have contributed to this;
- Regulatory perimeter: The boundary between providing guidance services and regulated advice is not clear to all stakeholders. We have been told that this can result in some firms feeling unable to provide potentially useful information to consumers if they feel there is a risk that it will be perceived as regulated advice;
- Consumer engagement: Stakeholders said that consumer education in financial planning issues could be improved to encourage engagement with advice and guidance services; and
- Innovation: Many stakeholders said that consumers value face-to-face advice and that alternatives (including online services) are less popular. Others said that new forms of advice and guidance are reaching more consumers, but that more work needs to be done to incorporate technology into the market to help consumers. Another suggestion on innovation included the idea of developing streamlined advice processes for simpler products.
The FCA added: “This is a summary and does not reflect all the points raised. We thank stakeholders for taking the time to respond to our Call for Input and engaging with us through our events and meetings to date.
“We are not commenting at this stage on the various issues raised, but are using the feedback we received to help focus our continuing work.”
Next steps
Over the next few months, as part of the review into RDR and FAMR, the FCA is planning to conduct additional research.
This will include information on the industry and consumers.
It will survey a sample of firms, to collect additional data about the industry, at the beginning of August.
They will have until the end of September to complete the survey.
The FCA will also review data it already holds from firm reporting, and from FCA market studies and supervisory work.
The watchdog also plans to gather consumer information through:
- The Financial Lives Survey (FLS), which is an extensive survey of consumers based on face-to-face and online interviews about their experiences of financial products and services; and
- Separate qualitative consumer research to support the quantitative data in the FLS.
It expects to publish the final report in 2020.
