It has been a busier year than most when it comes to regulation in the advice market but what’s the most important development to happen so far in your view?
Mike: For me it’s Consumer Duty. The regulator has repeatedly stated that it “will lead to a major shift in financial services promoting competition and growth based on high standards.” Considering the political pressure that the FCA is now facing to be more reactive and assertive, and to address issues such as low interest rates for savings, there is no doubt Consumer Duty will have a big influence in our world.
Alison: I’m going to go with the Financial Services and Markets Act 2023. Since Brexit, the UK government and regulators now have the responsibility for setting the regulatory and legislative agenda, and this Act has been the most important step forward in making this happen.
Tom: For me, the FCA’s decision to launch investigations into both retirement advice and the advice/guidance boundary are really important developments to come out this year. Both of these initiatives are addressing long-term dysfunctions in retail saving and investing and have the potential to transform outcomes for consumers, as well as the way the industry interacts with its customers, which is always a positive thing!
Looking ahead, what’s on your radar for the rest of 2023?
Rich: For platforms, this will probably be the treatment of cash interest held. The regulator continues to show an interest (and affording me a terrible pun) and while it may not be concluded before the end of the year, the clarity will be welcome when it comes.
Mike: As Tom has already mentioned, the FCA’s thematic review of retirement income advice has the potential to be even more impactful on advisers than Consumer Duty. The findings from this review are due towards the end of the year and considering that most advice firms will have the majority of their clients in, or approaching, retirement it’s certainly one we’ll be watching closely.
Tom: The Mansion House reforms are going to be important. Taken together as a package, they have fired the starting gun on the next big phase of pension evolution in the UK. Whilst they are necessary, they will also make many in the industry uncomfortable, challenging their licence to operate. It is an existential issue for much of the existing pension provision industry, as well as an exciting opportunity.
It’s interesting that you mention a potential change in government - how do you think changes in the wider economic and political outlook will impact advisers and their clients?
Tom: Advisers are masters at helping their clients adapt to economic or political volatility, which is just as well, given the myriad ways in which things could suddenly go sideways. Just look what’s happened to interest rates over the past 18 months! Advisers need good information, good systems and processes and the ability to learn and adapt. This is what they do, and I think they’ll be fine.
Alison: For me, I think the ongoing cost of living crisis and rising mortgage rates will draw many more people into vulnerable circumstances, not just financially but relating to their physical and mental health too. Firms explicitly have to monitor how they deal with this, and have appropriate systems in place to comply with the Consumer Duty. But these systems are likely to be increasingly put to the test, with their own staff as well as their customers. This could be a challenge for many firms.
And finally, what are you feeling optimistic about in the industry right now?
Rich: Entirely selfishly, I’m most excited about the work we’re doing at the lang cat around defining service better for advisers. Having worked either at or with platforms and advisers for my whole career, I’ve long thought that service needs better definitions and measures to help match the right advisers with the right providers. Once we’ve got it right, this feels like something that I’ll look back on and think I’ve helped to change the industry for the better.
Alison: It’s great that both advice firms and regulators are working on changing the advice/guidance boundary. It doesn’t work the way it is currently, and the advice gap is growing, so I’m looking forward to seeing if anyone can come up with solutions to improve the situation (although I’m not holding my breath...).
Tom: The prospect of a General Election is getting closer and the government is rushing to get stuff done and to bolster its poor ratings in the polls; Labour could be in power a year from now for the first time in 14 years, and much of their policy platform for financial services is still unclear. It is going to be exciting.
Mike: Possibly not optimistic, but for me the big question for Consumer Duty is how rigorously the FCA will enforce the new rules. Considering the scope covers all of retail financial services, we suspect the initial attention might be focussed elsewhere, for example banks and savings rates, but providers and advisers alike will be keen to see what areas the FCA believes need further attention.
Key client takeaways
- Given that the majority of advisers’ clients are in, or approaching, retirement the FCA’s thematic review of retirement income advice (findings due late 2023) could mean it has the potential to be even more impactful for advisers than the Consumer Duty.
- Now that the Consumer Duty rules are in force, advisers must have systems in place to monitor client vulnerability specifically. And with the cost of living crisis likely to draw many more people into vulnerable circumstances, this will be a challenge going forward for advisers and clients.