As we enter H2 2024, the Financial Conduct Authority (FCA) is on the verge of announcing the results of their much-anticipated advice review involving the UK’s top 20 financial advice firms. The whisperings from the regulatory grapevine suggest that some of these big boys have been more than a little naughty, with at least two firms already slapped with section 166 orders. And if the well-resourced titans of the industry can’t keep their houses in order, one shudders to think of the potential mess lurking within the smaller advice firms.
Cue the anxiety attacks and premature retirement plans. It’s not just the financial consequences; the stress of potential regulatory hammer-blows can take a toll on health, too. But before you hang up your regulatory hat, remember: there’s life after the FCA. Financial advisers can retire from regulated activities and still thrive as financial planners. We’re here to show you how.
Here’s the lowdown:
Ongoing Advice Review: The FCA’s Possible Australian Gambit
Julian Bovill, from Citywire reports.
The FCA’s ongoing review of the UK’s 20 largest advice firms might just rock the advice market’s boat hard enough to capsize it. Since February, the regulator has been collecting annual review data from these giants as part of its consumer duty supervision work. Their beef? Some consumers might be paying ongoing advice fees for advice they’re not even getting. Shocking, right?
St James’s Place (SJP) was the first to feel the sting of the section 166 review, followed by Quilter. And, rumor has it, others are sweating under the spotlight too. The FCA is no stranger to making examples out of a few firms before widening the net. Just look at the 2018 defined benefit transfer thematic review for a history lesson.
Compliance consultancy Bovill Newgate’s principal, Michael Lawrence, expects the FCA will share some feedback by Q3 or Q4. No need to panic just yet; the FCA isn’t trying to catch anyone off guard but rather clarify priorities. Translation: they’re planning to dish out a ‘good practice vs. bad practice’ playbook.
Mike Barrett from The Lang Cat consultancy notes this issue dominates every meeting. The burning question: Have advisers actually met their clients and conducted annual suitability reviews? If not, it’s refund time. But beyond that, does an annual review actually represent fair value for clients? The consensus is yes, though that could be tested soon.
The Nuclear Option: Australia’s Annual Consent Requirement
In a move that could make UK advisers quake in their brogues, the FCA might borrow a page from Australia’s playbook: an annual consent requirement for ongoing fees. Post-2017, after the Royal Commission exposed widespread malpractice, Aussie firms must now get annual consumer consent to deduct fees. It was a regulatory carpet bomb, decimating revenue streams and advice availability.
Lawrence doesn’t think the FCA will go nuclear like the Aussies. Instead, he expects a more measured approach aligned with the ‘outcomes-focused’ consumer duty. The aim? Flexibility for firms within the rules.
Who’s Feeling the Heat?
The FCA’s retirement income review in March highlighted that 2.9% of customers didn’t get their paid-for annual reviews in 2022. That’s peanuts compared to SJP’s estimated 19% compensation-owed client base. Yet, even small discrepancies can cause big headaches.
Adviser acquisitions have slowed, with consolidators scrambling to tidy up their annual review documentation. Phil Young of Zero Support underscores the systemic issue: if top firms are failing, how widespread is this really?
Client-adviser interactions vary widely, making a one-size-fits-all regulatory approach challenging. Felix Milton from Philip J Milton & Company notes the personal nature of ongoing services and how tricky they are to regulate.
The Industry Speaks Out
Jamie Jenkins of Royal London emphasises the value clients place on ongoing advice, particularly as they approach retirement. It’s about peace of mind, not just box-ticking.
Peter Glancy from Scottish Widows insists on transparency: clients must see what they’re paying for and what they’re getting. Pimfa, the adviser trade body, points out that ongoing service definitions are murky and should consider the broader adviser-client relationship, not just annual reviews.
Overregulation: The Real Threat
Investment Quorum’s CEO, Petronella West, warns of the overregulation risk: pricing out customers and forcing more firms to consolidate. The bottom line? If you charge for a service, deliver it. Simple as that.
So, dear advisers, as the FCA’s review looms, brace yourselves for potential shake-ups. Stay compliant, document meticulously, and remember, there’s always an unregulated silver lining if the storm gets too rough. And for those contemplating an early exit, financial planning awaits. We’re here to guide you every step of the way.
Academy of Life Planning 