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FCA review states RDR/FAMR failing to hit advice targets

3 December 2020

The Financial Conduct Authority’s highly-anticipated review of the market has said it found the advice and guidance market is moving in the right direction, but still has further to go to achieve the objectives set down in the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) to improve the distribution of retail financial services products.

The FCA said the aim of the RDR was to establish a “resilient, effective and attractive retail investment market that consumers had confidence in and trusted”.

The objective of the FAMR was to identify ways “to make the UK’s financial advice market work better for consumers”, a core part of which was improving the overall consumer investments market.

In its evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, the regulator said it had found evidence of some improvements in the market since the conclusion of FAMR, including:
• approximately 8% (4.1m) of all UK adults have received financial advice, an increase from 6% (3.1m) in 2017
• adviser numbers are up from 35,000 in 2012 to 36,400 in 2019 (4% increase)
• the creation of the FCA’s Advice Unit had helped firms to develop new automated advice models (it has received 137 applications for support, with 65 accepted)
• estimated assets under automated advice services increased from £0.4bn in 2016 to £3.2bn in 2019
• consumer awareness of automated advice has increased, with 19% of consumers reporting having heard of these services (compared to 10% in 2017).

However, despite the introduction of automated and robo-advice, the FCA’s report warned that there continues to be “significant clustering” around service types and and price points. It found that advice firms face little competitive pressure to innovate and offer new, more affordable services or try to attract less wealthy consumers.

Its data showed that only 17% of UK adults with between £10,000 -£100,000 investible assets took advice in the last 12 months, rising to 38% among consumers with more than £250,000 in investible assets.

Sheldon Mills, interim executive director of strategy and competition, FCA, said: ‘We want consumers to have access to high-quality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions.

“Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers.”

The FCA said there was greater scope for more varied services to develop and more should be done to provide support for mass market consumers to help them engage with their finances and make better investment decisions.

Sarah Waring, client and proposition director, Quilter, said: “Growth in financial advice has been moving at a glacial pace, making for very sobering reading when considering the financial wellbeing of the nation. It has been sometime since the regulator’s interventions through Retail Distribution Review and Financial Advice Market Review and there is palpable frustration from both the sector and the regulator that more improvements haven’t been made.”

Waring described the supply-demand dynamics within the advice market as complex and noted that part of the advice gap stems from a lack of understanding around the value of advice.

The FCA’s review showed that over two thirds (67%) of people did not think they need advice, while a take-up of automated services was held back by a number of factors, including a wariness about using unfamiliar brands.

Meanwhile, one in six (15%) consumers cited access issues as a barrier to receiving advice, while a similar proportion (16%) said they had a lack of confidence or trust in the sector.

Waring continued: “The FCA identifies two developments that would make a substantial difference to the market – simpler forms of streamlined advice and more personalised guidance services. This makes sense as we are increasingly hearing from advisers that are engaging with intergenerational planning, that younger relatives often need transactional advice rather than holistic advice given where they are in their financial journey. Reformed regulatory requirements and technology can go a long way to help fill this gap.

“It is clear that the UK remains behind markets like the US where the use of technology and AI is more advanced and they are moving away from the false dichotomy of face-to-face advice versus robo-advice.

“That being said, technology is clearly not the silver bullet. Although there is more awareness of automated advice services people remain wary. Technology is a great democratic power to allow services to reach a wider audience but we need to be cognisant that when it comes to their money people are very cautious.”

Stephen Lowe, group communications director, Just Group, said the firm was particularly concerned about the number of people accessing their pension without sufficient advice.

Lowe commented: “Our concern is around the 1.2 million who say that they plan to access a DC pension pot in the next two years who need support to navigate the complex choices that lie ahead. Many of these will end up in an income drawdown arrangement without advice, but the report found that misconceptions abound despite large numbers saying they had read the provider literature.

“So far we have relied on nudges and signposting to get people to the information and guidance, but clearly that is not working to boost the numbers in any meaningful way. The government’s latest plan is for more nudges towards Pension Wise but if we keep doing basically the same thing we are going to end up with the same result, which is far too many people making big financial decisions without support.”

However, Canada Life tax and wealth specialist Neil Jones welcomed the progress that has been made since the introduction of the RDR and FAMR and said advisers were well positioned to help more consumers receive support.

Jones added: “It is excellent that more people are benefiting from financial advice. The availability of information has grown over recent years but so has the variety and complexity of potential solutions, which advisers are well-positioned to provide advice on and ensure better customer outcomes.

“There are still issues around investing and the impact of inflation-risk on cash holdings. With interest rates below inflation and the potential for negative rates, the impact will see the real value of savings decline and this can be damaging over the medium to long term. Markets have seen volatility with world events but there has been fund and product development designed to help provide limited downside risks. Again, advisers are well-positioned to help these potential clients.”

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