The Financial Conduct Authority has launched a Call for Input as part of its drive to improve the consumer investment market, with six questions at its core.
In its latest paper, the watchdog said it was concerned that some consumers are led into making poor investment decisions and that there remains areas where the market “isn’t working well enough.”
It also said it would like to see more firms offering “high-quality support” for their customers and said that consumers looking for straightforward, one-off or ‘focused’ advice would benefit from access to a ‘pay as you go’ form of focused advice model. However, it noted that there had been slow growth and innovation in services that meet these needs.
Christopher Woolard, interim chief executive, FCA (pictured), said: “We have made significant improvements to this market to protect consumers. But there are over 5,000 financial adviser firms and more than 27,000 individual advisers acting as intermediaries between the consumer and their investment. Dominated by small firms, these complex chains of interdependent products and services – some of which are beyond our regulatory remit – make it easy for bad actors to ‘hide’ and challenging for us to oversee.
“The consumer investment market is not working as well as it should. Too often consumers receive lower returns than they should because of unsuitable products with high fees. Too often there have been scams and scandals in this market leading to consumer loss. Too often consumers leave their savings in cash because they don’t have confidence in the alternatives.”
As part of its Call for Input, the FCA is focused on a series of core questions:
- What more can we do to help the market offer a range of products and services that meet straightforward investment needs?
- How can we better ensure that those who have the financial resources to accept higher investment risk can do so if they choose, but in a way that ensures they understand the risk they are taking?
- How can we make it easier for people to understand the risks of investment and the level of regulatory protection afforded to them when they invest?
- What more can we do to ensure that when people lose money because of an act or omission of a regulated firm, they are appropriately compensated and that it is paid for fairly by those who cause the loss?
- How can people be better protected from scams?
- What more can we do to facilitate effective competition and encourage firms to develop innovative products and services which help consumers to invest?
Aegon’s pension director Steven Cameron called the paper “wide ranging” and said it brought back memories of the Financial Advice Market Review.
Cameron said: “Topics under consideration include mass market versus high risk investments, the advice versus guidance debate, consumer compensation and how to ensure ‘polluter pays’, scam prevention and technological innovation. There’s likely to be something here that every adviser firm across the UK will have an interest in.
“It’s important that the FCA does keep a focus on protecting people from scams and stamping out the small minority of poor advice. But this needs very different treatment from supporting the growth of a market which can support more people in the way that works for them, cost effectively. That could be holistic ongoing advice, one-off or simplified advice, more tailored forms of guidance or better constructed information.
“At the heart of this, we need to make sure the vast majority of highly professional financial advice firms aren’t burdened with ever increasing FSCS levies or Professional Indemnity premiums.”
In its paper, the FCA said that despite commentators calling for greater consumer financial education, interventions to improve financial literacy had very little effect on financial behaviours and said that “well-chosen defaults and timely information or education” in small bursts were found to be more effective.
However, Jane Goodland, corporate affairs director, Quilter, said the firm was concerned by the FCA’s suggestions around financial education, which Goodland said severely missed the point of financial education, particularly in primary school.
Goodland commented: “The main emphasis of financial education in young children is not about specific knowledge retention, importantly it is about the habits and behaviours, and the relationship with money that children develop at that age. Instilling the value of saving, delayed gratification and an overall consideration of how money works is something they will carry with them whether or not they can tell you specifically what AER, APR or compound interest means.
“Just in time’ education absolutely has a place in an overarching plan to help people make decisions with their money, but these nudges would be more effective if people already have a good basis of financial literacy.”
Respondents to the FCA have until 15 December 2020 to submit their feedback.
