The Financial Conduct Authority is due to publish their Financial Advice Market Review within two weeks. The FCA took charge of regulating independent financial advisers with a brief, broadly, to get more consumers to have better financial advice at more competitive rates. Unfortunately the FCA’s mindset is regulating large corporations, not sole traders as IFAs are. It is, or should be, a truly competitive market with quality and price determined by informed (and there’s the rub) consumers.
The result was a complicated set of rules. James Cartlidge MP described in the House of Commons (Hansard 1st February 2016, p.738) his own IFA experience: “We had a famous document called MCOB—the mortgage conduct of business rules—which was the size of a doorstep, and none of which made sense to anybody. I think it is the assumption of the regulator that small practitioners have armies of compliance officers, just like the banks. Of course, nothing could be further from the truth.”
One of the worst new rules is the unbundling of advice from the financial products. Under this, the consumer pays the IFA up front for a lifetime’s advice and then receives the benefits in due course (or not of course). This may seem sensible at first blush but it is like paying Kelloggs for the lifetime value of their expertise to you and then buying cornflakes and Rice Krispies at cost thereafter. Consumers simply do not want to do that.
Cartlidge referred to the consequential claimed “loss of about 13,500 independent financial advisers” (15%). Senior industry figures reckon the use of IFAs has decreased by as much as 47.5% and, of course, the Treasury saw the figure as too low to start with.
Whatever the precise numbers it is clear that the FCA is failing in its mission to make the financial advice market more competitive. By increasing costs and complexity it is driving sole traders out and thereby reducing competition and value for consumers. The FCA cannot point to improvements in the quality of advice and consumers do not like the new charging arrangements. Most would rather muddle along on their own than take professional advice.
The FCA should see IFAs as potentially constructive partners in a joint effort to meet UK financial consumers’ needs, rather than wrong-doers needing to be policed. This would require a reversal of their current attitude. The 2016 FAMR is likely to add Pelion upon Ossa in terms of bureaucracy and cost, compounding the strategic problem.
I hope I am wrong.