The joint FCA and HM Treasury Financial Advice Market Review (“FAMR”) was launched last year – see Regulatory Roundup 67.
The purpose of the review was to examine:
- the advice gap for those people who want to work hard, do the right thing and get on in life but do not have significant wealth;
- the regulatory or other barriers firms may face in giving advice and how to overcome them;
- how to give firms the regulatory clarity and create the right environment for them to innovate and grow;
- the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice services; and
- how to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.
The final report was published on 14 March 2016 with various recommendations. Interestingly, one of these was to consider amending the definition of regulated advice.
The recommendations fall into three key areas (the following are not exhaustive – there are 28 recommendations in total – and reference should be made to the final report for all the recommendations):
- The FCA should consult on new guidance to support firms offering services that help consumers making their own decisions without a personal recommendation.
- With this in mind, HM Treasury should consult on amending the definition of regulated advice (which is currently quite wide) with a view to aligning it with the MiFID definition i.e. based upon a personal recommendation. This should make it easier for firms to determine those services which fall outside the involvement of regulated activities.
- The FCA should produce new guidance to support firms offering streamlined advice on a limited range of consumer needs.
- Consideration should be given to modify the time limits for employees to gain an appropriate qualification in the Training and Competence sourcebook (“up to four years”).
- A concern is the need to tackle barriers which might prevent consumers seeking out advice and other forms of support. Therefore the FCA (and The Pensions Regulator) should develop a factsheet to set out what help employers (and trustees) can provide on financial matters without being subject to regulation.
- Options should be explored which would allow access to a small part of a consumer’s pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice.
- Currently employers are able to arrange for advice – up to a value of £150 – on pensions to be provided to an employee without incurring income tax or National Insurance. It is recognised that the cost of full financial advice would be far in excess of this sum and HM Treasury are charged with exploring ways to improve the exemption.
Liabilities and Consumer Redress
- The report believes that adequate protection for consumers is essential to provide the necessary confidence for them to seek financial advice. Arising out of this is the recommendation that the FCA’s next FSCS Funding Review should explore risk-based levies, reforming funding classes and consider the practicalities of alternative approaches.
- The Financial Ombudsman Service (FOS) should consider undertaking regular ‘Best Practice’ roundtables with industry and trade bodies where relevant issues can be discussed such as the evidence used when considering historic sales and suitability requirements.
- It is also recommended that the FOS gives consideration to bringing together on its website relevant material such as case studies, technical guidance etc. to assist advisers.
The final recommendation is for both the FCA and HM Treasury to report jointly to the Economic Secretary and the FCA Board, 12 months after publication of FAMR, on the progress made towards implementation.
Chapter 6 of FAMR provides a useful table summarising the recommendations – with each recommendation having an ‘owner’ – and indicative timeline.