Financial Advice Market Review kick-starts the conversation on the future of financial advice and guidance

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HM Treasury and the Financial Conduct Authority (FCA) are putting their heads together to examine the way customers can most effectively access financial advice and guidance.

Having earlier published their terms of reference for the Financial Advice Market Review we’ve now received their “Call for input” new window), which will run until Christmas. The intention is for the Treasury and FCA to agree on a direction of travel by next Spring. 

Talking about financial advice and guidance

The consultation has kick-started the conversation around financial advice and guidance and creates an opportunity to really define and address the challenges we need to overcome in today’s market. 

It’s almost three years since the last review of advice, the FCA’s Retail Distribution Review, came into effect. Advisers rose to the challenge of demonstrating enhanced levels of professionalism, clarifying the cost of advice, moving away from commission and increasing transparency over advice services. 

But as many of us expected, the RDR also created an advice gap and many people on modest incomes can’t afford to pay the fee for full professional financial advice. Without a financially sustainable way of advising these clients, some advisers understandably have had to stop serving those outside the higher wealth bands. 

Coming up with a way to close this advice gap is one of the review’s central aims and it’s great to see HM Treasury and the FCA working together. In the past there have been occasions when financial regulation hasn’t dovetailed with government policy, creating  difficulties. But the joint nature of this review means any developments to public policy can be reflected in the regulatory landscape.

We also need to take the review as an opportunity to clarify the differences between advice and guidance. In our recent Aegon research, 75% of consumers, and 86% of advisers told us that they think there needs to be clearer communications about the different type of advice and guidance available.

Timing is everything

The review comes at an important time. We’ve seen many major changes to pensions, with the new pension freedoms changing the nature of advice many individuals need. It’s also brought us Pension Wise, which some consumers may think of as advice, but it’s actually unregulated guidance.  Technology has also come on leaps and bounds and it’s time to review whether this can add to the mix and support full professional advice.

At the moment, advice can be a bit ‘all or nothing’. Consumers willing and able to pay for advice get a high quality, comprehensive, professional service, and our recent research reaffirms how satisfied those who seek advice are with it. But for others, is there scope to give them ‘something’, at a cost they find attractive? If people have much narrower needs for support, could we make advice more modular? Could people pay for the aspects of advice they want and then be steered towards additional print, digital or video content to give them information and guidance on surrounding matters?

Combining full advice on certain topics with additional guidance provided by advisers and providers through new channels could lower the cost for consumers and make it financially sustainable for advisers to reach out to a wider section of the overall market. 

And of course, reviewing the FCA rules and costs around regulated advice also needs to be firmly on the agenda.

Breaking down barriers 

At this point, it’s unclear exactly how the review will develop. But it’s incredibly important that we take away the barriers that stop people accessing the financial support they need, whether they relate to cost, complexity or convenience. I believe that we can find ways around them and create a market we’d all welcome - where consumers can quickly and easily get the support they need, whether it’s professional financial advice or well-informed guidance.

Photo of blog author Steven Cameron, Regulatory Strategy Director

Steven Cameron

Regulatory Strategy Director