A major review into consumer access to the financial advice market has been launched by HM Treasury and the Financial Conduct Authority (FCA).
The Financial Advice Market Review (FAMR) has been set up to improve less wealthy consumers' access to financial advice.
It follows the introduction of the pensions freedom and choice reforms in April which gave defined contribution retirement savers complete access to their pension pots without the need to buy an annuity.
A Treasury announcement said the review will:
- Examine the 'advice gap' for those people who want to "work hard, do the right thing and get on in life but do not have significant wealth";
- Ensure the regulatory and legislative environment allows and encourages firms to innovate and grow their business models to include affordable and accessible financial advice;
- Consider ways to encourage people to seek financial advice, addressing unnecessary barriers that currently deter them.
The review, which will be led by acting FCA chief executive Tracey McDermott and director general of financial services at the Treasury, Charles Roxburgh, will examine all types of retail financial products including pensions, savings, mortgages, and insurance.
It will report before the 2016 Budget.
The FCA and government said the review will seek to come forward with...
- A package of reforms to empower and equip all UK consumers to make effective decisions about their finances; facilitate the establishment of a broad based market for the provision of financial advice to all consumers; create an a regulatory environment which give firms the clarity they need to compete and innovate to fill the advice gap;
- A set of principles to govern the operation of financial advice;
- Measures to ensure standards of behaviour for firms within all types of financial advice markets are in accordance with those principles;
- Proposals as to whether the regulatory perimeter for financial advice should be amended, taking into account European legislation;
- An examination of the role that might be played by regulatory carve-outs such as a so called safe-harbour;
- A consideration of the proportionality of rules and their impact on affordability and availability of financial advice and products.
The Treasury said it wanted to make sure people can access high-quality, affordable, tailored advice and guidance to help them make informed financial decisions.
The review will also seek evidence from consumers about the barriers they face in seeking advice; the value they place on it and how easy it is to understand where advice can be found and what it means.
Harriett Baldwin, economic secretary to the Treasury said : "Making sure that our financial services sector supports working people at every stage of their lives is a key part of our long-term plan.
"That's why we've launched a major new review to explore what more can be done to make sure consumers can access high quality and affordable advice so they can make informed decisions with their hard-earned money."
An additional consultation will begin later in the year looking at how guidance services Pension Wise and the Money Advice Service can be made more effective.
Huw Evans, director general at the ABI said: "This is a welcome step which comes at a good time.
"The new pension freedoms have highlighted how important it is that proper advice is accessible to all, not just those that can afford it."
Regulatory burden
Association of Professional Financial Advisers director general Chris Hannant said his organisation had "long been campaigning" to reduce the significant regulatory burden on advisers.
"We welcome government recognition of the need to examine the legislative barriers to accessing affordable financial advice.
"We believe there needs to be a fundamental rethink of the current regulatory environment, particularly around liability."
Hannant cited the lack of a long-stop for advisers, the levy approach of the Financial Services Compensation Scheme - which he said "penalises regulated advisers for those unregulated investments which go wrong as well as imposing an unpredictable and seemingly ever-increasing fee burden" - and concerns that the Financial Ombudsman Service faces "systematic problems" in its decision-making.
He added APFA was "particularly pleased" one of the issues under examination would be the interaction between the regulatory framework for advice and the role of the FOS and FSCS in redress.
He said: "Consumers need to understand that investments can never be 100% risk-free.
"We look forward to continuing to work with HM Treasury and the FCA as part of this review and elsewhere to ensure liability is assigned more fairly and that steps are taken to minimise the cost of regulation for professional financial advisers."
Providers also welcomed the announcement of the review.
Aviva UK and Ireland Life chief executive Andy Briggs said: "Good advice makes a huge difference to people when they are navigating their choices on savings and retirement, but the rules today have not kept pace with people's needs.
"Customers should more easily be able to get low cost or free guidance from providers alongside their right to pay for more bespoke, personalised advice."
