Martin Wheatley provoked plenty of backlash in May when he voiced his concerns that the mass market was no longer being adequately serviced with financial advice. The chief executive of the FCA used the occasion to discuss his fears of a growing advice gap and the potential to plug it with automated advice solutions.
In July, a 56-page guidance paper followed titled Retail Investment Advice: Clarifying the Boundaries and Exploring the Barriers to Market Development, the City watchdog put forward the regulator’s view on what constitutes regulated and unregulated investment advice in a bid to calm fears and help companies struggling to develop simplified, automated advice models.
But despite this pledge to rectify what has become a growing concern since the retail distribution review was introduced in 2012, many advisers were sceptical that automated advice would ever become cost effective and viable from a regulatory standpoint.
According to Alan Parkinson, owner of Liverpool-based CPD Independent Financial Advisers, Mr Wheatley’s criticism of the current advice model as expensive and time consuming was ironic given that RDR regulations explain the current predicament. Without commission, he said “the client is paying us to comply with their own over complex, over zealous regulation.”
Unless the rules are made more lenient, Mr Parkinson concluded that simple, automated advice would be difficult to deliver. He added: “Caveat emptor needs to be revived for all simple matters, with the IFA being paid to carry out a basic conflict check and to transact the business with the best available provider.
“However, the more complex transactions would still require detailed chargeable advice for which liability would need to prevail and a relevant charge for accepting said liability. The rules are as stringent for either full or simplified, which is one reason why the gap has emerged. They may need to be relaxed to enable the adviser to make the smaller transaction commercially viable.”
David Barnett, principal of Middlesex-based DPB Independent Financial Services, was of a similar mind, and claimed that regulation had become “so burdensome” that it was “unfair” and “against all normal law” for the FCA to carry out retrospective reviews.
“Why take the risk of doing something new, that not only requires more new processes but also runs the risk of the regulator deciding this was not the correct way to carry out the business originally and starts fining people as a result. If Mr Wheatley thinks it is possible to automate complicated financial advice, then on the same basis it should be just as possible to automate the regulation of financial services. Think of the billions that would be saved.”
Simon Webster, director of Kent-based Facts & Figures chartered financial planners, was also unwilling to change his advice process and predicted that the FCA was unlikely to see it through because of all the risks involved. While most of the population may be happy with online services, he said that a lower-cost mass market approach with open-ended lifetime liability was something that none of his peers would adopt without reassurances of immunity.
