Richard Walsh warns that the advice gap will not narrow despite FAMR report findings.
In March the long-awaited FAMR report was published. Its core revisits the FSA's gold-plating of MiFID and about time too.
Many of its 28 recommendations are calls for further work, as opposed to concrete proposals for action.
This has prompted criticism but better to get it right rather than rushing into ill thought out change. I would sum it up with a Churchill quote "Now if not the end.
It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
The review correctly diagnoses that the effect of gold-plating has been to create an advice gap for people on lower incomes or with lower levels of assets who cannot afford to pay the fee for advice or find it hard to access advice.
But removing gold-plating will not automatically reduce the advice gap. There may still be few IFAs wanting to service that market and there will still be consumer engagement issues.
The report majors on advice on saving into a pension, taking an income in retirement, and savings generally. It does mention, in passing, an advice gap on life insurance and protection cover.
Sadly the report doesn't go on to address this point in any detail but given where we are on all this there is plenty of opportunity for the industry to lobby for its inclusion.
Right now, people on low incomes or with small investments have little choice but to make their own decisions, sometimes supported by limited information and guidance from insurers and other sources.
Many companies rightly feel that they are stopped from doing more by the current regulatory framework and possible responses from the FOS if their information can lead to a claim that they actually received advice (which was wrong).
There seems to be a consensus that a clearer boundary between services that constitute regulated advice and those that constitute guidance will allow companies to provide the maximum amount of support possible to consumers.
HMT is to consult on amending the definition of regulated advice so that it based upon a personal recommendation, in line with MiFID and for new guidance to support companies who wish to offer "streamlined advice" on a limited range of consumer needs.
Of course moving the regulatory boundary would also enable unauthorised companies to provide services for which they currently require authorisation.
So the report recommends that HMT considers the potential benefits, risks and mitigation strategies associated with any change.
How this all pans out will determine to a great extent whether or not the advice gap for customers not served by IFAs starts to close.
And also whether networks and IFAs can move into this space given the lower costs involved.
The report also calls for the FCA review of FSCS funding to look at introducing risk-based levies.
Ways to do this might include applying different levies depending on the types of services an IFA provides (i.e. the riskiness of its business), or by looking at whether a IFA's future compensation costs could be met by adequate capital reserves or professional indemnity insurance (PII).
To do this they will consider the operation of the PII market to ensure it is functioning well and to establish the relationship between PII and FSCS claims.
Following the review of FSCS funding and the PII market, the FCA will consider whether to also undertake a review of the availability of PII cover for smaller advice firms.
Establishing a risk based FSCS levy would be a significant win for many IFAs.
The ideal result (for low risk firms) would be a lower levy and lower PII premiums.
Richard Walsh is a fellow at SAMI Consulting
Further reading
FAMR: Call for change to 'regulated advice' definition
