The SimplyBiz Group has published the key measures it feels need to be addressed by the FAMR in order to revitalise the post-RDR advice market for the benefit of consumers and reduce the advice gap.
The group says that last year, the FCA issued roughly two outputs per week. While not all these were relevant to advisers, many in the industry feel this weight of regulation as well as the overwhelming need to ‘cover their backs’ for fear of repercussions further down the line, it says. On top of the concerns generated by the regulation, the costs in terms of time as well as money are huge barriers to both retaining advisers and attracting new entrants to the market.
In order to reduce these pressures, SimplyBiz Group suggests that the FCA focuses on dramatically reducing and simplifying the regulation it produces. On top of this, consumers must take greater responsibility for the decisions they make in terms of understanding the advice they have received. Introducing a 15 year long-stop would also restore confidence in the sector and improve adviser sentiment, the group claims.
SimplyBiz says the current funding model for the FSCS, with the adviser bearing the costs for this compensation fund, is “grossly unfair and unsustainable”. The firm proposes that product providers should become the primary source of funding of the FSCS. Providers have significantly greater market intelligence than anyone other than the regulator and so should be well able to identify ‘problem firms’ at an early stage, it says. Either providers could bear the full costs, or, advice firms could make a token contribution – with advisers paying 20% of the cost of the FSCS and providers contributing the balance.
In addition, SimplyBix says that in order to encourage less well-off consumers to seek advice, there needs to be greater transparency of product costs. This could be introduced using the Total Expense Ratio (TER) of a product.
Finally, consumers have the right to decide how they pay for advice, the group said. This choice was removed by the RDR, to the serious detriment of the consumer. SimplyBiz Group proposes that advisers and product providers have the ability to offer consumers the choice of having the adviser’s fee paid via, and over the life of the product, rather than by a direct fee. This, in conjunction with the introduction of TER, would clearly reflect the adviser’s remuneration costs.
Ken Davy, chairman of the SimplyBiz Group said: “We warmly welcome the FAMR and believe it is a timely and critical step towards revitalising the advice market. The advice gap is widening on a seemingly daily basis. The number of financial advisers has dropped by 90% in the last 27 years and with the RDR removing commission, advisers have been forced to concentrate on their wealthier clients.
“In order to help those less well-off access advice and rejuvenate this industry, the FCA and FSCS need to examine several of their measures and review their protocols. Our proposals will make a significant contribution to improving regulatory clarity and will therefore help create the right environment for innovation and growth.”