City regulator outlines plans to plug financial advice gap
A review by the Financial Conduct Authority (FCA) and the Treasury put forward a number of recommendations to increase both the accessibility and affordability of advice.
The review, known as the Financial Advice Market Review (FAMR), was launched in response to the growing ‘advice gap’ where consumers need advice but cannot afford it.
The ‘advice gap’ was an unintended consequence of rule changes which banned advisers being paid commission on products they sold. Following the introduction of the rules in 2013, many advisers said it wasn’t economical for them to take on less wealthy clients.
Among its recommendations, the review calls for consumers to be given early access to a small part of their pension pot to be able to pay for advice costs.
“This will ensure that consumers can access financial advice at a key milestone in their lives and feel confident in making financial decisions as they approach retirement,” it said.
It also calls on the FCA to consult on narrowing the definition of regulated advice so that it is based on “a personal recommendation”.
It said the number of terms currently used to describe advisory services “can be confusing for firms and consumers”.
The findings also said the FCA should set up a dedicated team to help firms seeking to develop large scale automated advice models – so-called robo advisers – to bring them to market more quickly.
Robo-advice, where people go online and receive automated financial advice via an algorithm, is one way banks and advisers are trying to plug the advice gap.
Tracey McDermott, acting chief executive of the FCA, said: “This review has taken place against the backdrop of social and demographic changes which have led to an increasing need for individuals to take more responsibility for their own financial future. But we know that people often find it difficult to engage with financial matters and we need to make it easier for them to do so.
“The package of reforms we have laid out today will help increase both the accessibility and affordability of the advice and guidance to ensure that consumers get the help they really need when they really need it.”
Charles Roxburgh, director general, financial services at HM Treasury, said: “At a time when more and more people are seeking financial advice and guidance, we have set out how we can deliver a vibrant financial advice market that works in the interest of all consumers. Our recommendations will increase the amount of affordable, high quality financial advice that is widely available so it’s easier for people to access it at every stage of their lives.”