So FAMR, so good ...
Since its inception back in August 2015, the Financial Advice Market Review (FAMR) has been a hot topic of conversation among the financial services community. At its heart, the review held an objective we could universally get behind - to improve the way in which the industry worked for consumers.
The key words in the regulator's statement on FAMR - and ones you will see coming up again and again in reference to the review - are ‘affordability' and ‘accessibility'.
In essence, the FCA wants to ensure there is a wide range of ways through which high-quality advice is available to consumers. It is hoped this will make it easier for them to engage with their own financial affairs and understand when professional advice is required.
As with any wide-scale regulatory review, the results of the impending FAMR caused some ripples of concern among advisers, particularly as the phrase "RDR part II" became regularly bandied about.
The FCA - and particularly since its helm was taken up by Andrew Bailey in July last year - has, however, begun to establish a reputation as a more consultative, less dictatorial regulator. Certainly, the original 28 recommendations arrived at by the review appeared to be balanced in benefits to advisers and consumers, without detriment to either.
So, two years down the road, how is FAMR shaping up in reality? Well, a progress report issued by the regulator in April this year offers us a clear picture of where we are with each recommendation so far. Below is a summary of the points which are likely to be of most interest.
* Recommendation 2 - The definition of advice: Firm definitions of ‘advice' and ‘guidance' have been very elusive in the past, and I have spoken to many advisers recently who are keen to have a more structured framework put in place.
The progress report sets out this new definition and clarifies it means that, from 3 January 2018, regulated firms will only be providing advice when they offer a personal recommendation to a client.
In a change to the current guidelines in place, advice can be classified as such whether it is for a client to make a change to the products or investments they have in place, or to make no changes. In other words, if you will forgive a triple negative, advising a client not to take any action will no longer mean no advice has been given.
* Recommendations 3 and 4 - Non-advised and streamlined advice: From the time the FCA first began to talk about FAMR, it has been very clear that ‘robo' and streamlined advice are due to play a big role in the regulator's vision of the future.
Once we had all shaken off the initial nightmarish vision of thousands of cybermen wielding calculators closing in on innocent clients, it became evident robo/digital/non-advised/streamlined advice might be a huge opportunity for, rather than threat against, traditional human advisers.
Since the RDR saw off commission back in 2012, we know an issue quickly developed around the amount of clients who could afford advice. This lack of accessibility clearly goes against the entire objective of FAMR and it is therefore no surprise that cheaper, automated services are front-and-centre in the FCA's recommendations. While there are a number of solutions now entering the field, we are yet to see robo-advice making huge inroads into traditional markets.
With consumers from all age and background groups becoming accustomed to transacting all sorts of business online, however, automated advice looks like it may well be the key to establishing the value of advice with the next generation of clients.
* Recommendation 5 - Training and competence: Only one big change regarding this recommendation, but hopefully a welcome one. New entrants now have 48 months to obtain appropriate qualifications, as opposed to the 30 months it was previously.
* Recommendation 8 - Suitability reports: This is an area that impacts hugely upon the day-to-day advice process of most advisers. FAMR recommended suitability reports should be reduced in length and complexity and increased in clarity.
The Association of Professional Financial Advisers produced some guidance in December 2016 in order to help advisers understand the regulator's expectations for clarity - a document I highly recommend you all have a look at in full.
* Recommendation 10 - The factfind process: Another important issue in the day-to-day business of advisers, the regulator has released a limited amount of information on what it would like to see included in the factfind process.
Its initial suggestion - that it would create a standardised factfind for all advisers to use - has not come to fruition, which is a positive thing in my opinion. I would, however, have been pleased to see more specific information on what the regulator would like to see included - and maybe more will follow shortly.
As I mentioned when looking at ‘Recommendations 3 and 4', the FCA is very keen to ensure access to advice is considered as regularly as possible. To this end, it has also been investigating technological portability in factfind solutions, meaning advisers may be able to shave some time and resource from the length of their advice process by having some clients complete factfinds remotely, before seeing an adviser.
While much of the consultation on these areas has yet to become regulation, it is fair to say the FCA seems to be working hard to take an even-handed approach to the development of final FAMR rules, taking on board the way guidance will work in practice and ensuring it includes the viewpoints of all stakeholders.
As such - and with a solid ‘at-the-time-of-writing' caveat in place - I am pleased to say it does appear to be going so FAMR, so good!