FAMR was set up in response to growing concerns that the advice market was not working as well as it could for everyone. “The recommendations of the Review, some collective, some individual, have the objective of ensuring all consumers have access to appropriate, affordable advice and guidance, at all stages of their lives”.
Social and demographic changes have led to an increasing need for individuals to take more responsibility for their own financial futures. The FCA believes that although the decisions consumers make are becoming more complex and significant, people are making more decisions without any, or with only limited, advice or guidance.
The FCA proposals fall into three main areas:
- Affordability: The Retail Distribution Review (RDR) brought about changes in the advice available. The recommendations FAMR proposes are designed to allow firms to develop more streamlined services to enable them to have confidence to give cost-effective advice on particular limited needs. FAMR also recommends that the difference between advice and guidance is made clearer.
- Accessibility and Engagement: The introduction of auto-enrolment has led employees to increasingly look to their companies for support on financial matters. FAMR recommends making information about consumers’ pension wealth more easily available to them and those that advise them. The FCA also intends to address lack of consumer engagement through the use of ‘rules of thumb’ and ‘nudges’ to encourage customers to seek support at key life stages. For example, asking people to think about the protection cover they have when starting a new family.
- Liabilities and Consumer Redress: FAMR recommends increased clarity and transparency about the Financial Ombudsman Service deals with consumer complaints. The FCA is intent on striking a balance between ensuring firms are willing to offer advice in good faith, knowing that if it is professional and suitable they will not be exposed to costs in the future, but also ensuring appropriately high levels of consumer protection, and making those protections clear and tangible, in order to inspire public confidence in the advice sector.
McDermott pointed out that advice sits on this list of FCA priorities as set out in its recent business plan. “Advice sits alongside other big issues like firms’ culture and governance and financial crime; it demonstrates the weight we’re putting behind ensuring we do our part to make advice accessible to all and our commitment to ensuring these reforms are effective”.
Boards and senior executives need to ensure good customer outcomes are designed in to products and services at the outset, that incentives are aligned and appropriate, and that the needs of customers are considered throughout their relationship with the firm, not just at the point of sale.
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