In a publication issued on 9 October 2015, the HM Treasury and the Financial Conduct Authority (“FCA”) announced a call for input in regards to their Financial Advice Market Review (“FAMR”) which aims to look at how financial advice could work better for consumers (the “Consultation”).
The Consultation is aimed at gathering more information which is necessary for tackling and addressing various issues within the financial advice market for consumers. The continuous growth in technological innovation on both a market and a consumer side has led to various changes in the types of advice which can be provided and also on the advice which is sought by consumers. Not all consumers require professional, face-to-face advice and the the increasing availability of online services, are continuously leading to changes and a broadening of the methods in which people seek and receive advice for their financial planning. For this reason, the Consultation takes a broad approach in order to help regulators adapt to the dynamics of the financial environment whereby it looks at the provision of advice outside of just its regulatory definition and into a more practical and current context. In order to most accurately address the above issues, the HM Treasury and the FCA seek to improve the provision of all such advice through stronger consumer engagement upon which future work will be based.
Some of the main issues identified in the Consultation as being faced by people at present include:
- increasing complexity in financial services products and how they are described;
- increasing choice of products, product features and distribution methods;
- increasing levels of debt in some consumer segments;
- the impact of technology on how people engage with financial services products and services;
- increased flexibility in how people are able to draw money from pension schemes at retirement; and
- changes to demographics, leading to an ageing population and the need to consider issues such as long-term care.
In this context, the Consultation aims to consider:
- the extent and causes of the advice gap for those people who do not have significant wealth or income;
- 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 prevent consumers from seeking advice.
The call for input asks 41 questions spread throughout 3 different focus areas on which the HM Treasury and the FCA are asking readers to contribute their thoughts and evidence on the discussed matters. Views from firms are welcome on the areas that they consider to be most relevant, but responses do not need to address all of the questions posed. Below we have provided summaries of some of the issues addressed and questions asked:
Consumers needs and requirements in regards to financial advice
- demand for professional advice;
- level of demand from sources other than professional advisers;
- correlations between different types of consumers and their respective needs;
- types of financial needs for which consumers might seek advice;
- utility of FCA’s Consumer Spotlight segmentation model exploring consumers’ advice needs; and
- reasons why consumers stop seeking advice.
- issues in regards to the supply of financial advice;
- role of new and emerging technology in the provision of advice;
- the economics of supplying advice;
- costs and revenues associated with different advice models;
- which consumer segments are most economical to serve given the cost of supplying advice;
- barriers for firms providing advice;
- what is an advice gap for firms (lack of demand for advice?);
- where are there advice gaps; and
- the focus of the advisory review.
Options for closing the advice gap
- simplification of the current regulatory framework;
- whether any of the regulatory approaches taken by other jurisdictions could serve educational;
- utility of safe harbours;
- the possibility of an absence of a longstop leading to an advice gap;
- automated advice and surrounding issues;
- bars to digital innovation and avoiding them; and
- main consumer considerations relating to automated advice.
To view the full list of questions and the full consultation please follow this link.
If you would like to submit your input on any or all of the above the questions asked in the consultation you can do so through this link by 22 December 2015.
Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.