26 June 2019

In 2006, the then Financial Services Authority initiated the Retail Distribution Review (RDR) which sought to create a more resilient and attractive retail advisory market. The RDR indicated various issues within the retail investment market such as low qualification standards for advisers and potential conflicts of interest arising out of commission payments to advisers. The RDR culminated in a set of rules in 2012, which sought to curb these issues.

An initial review of the effects of the RDR was undertaken in 2014, which showed overall a positive impact on the market. Building on the RDR, the FCA launched the Financial Advice Market Review (FAMR) in 2015, in collaboration with HM Treasury. The aim of FAMR was to find ways to stimulate the market for affordable advice in a post-RDR world. FAMR clarified potential market failures in the consumer financial advice market, in particular issues such as affordability and accessibility.

The call for input

The questions in the call for input reveal the FCA’s areas of interest, with a focus on value for money. The FCA has outlined outcomes and indicators in relation to RDR and FAMR. It will assess qualitative and quantitative evidence from consumer and industry research to evaluate RDR and FAMR against these outcomes and indicators. For example, outcomes for RDR include creating a market that allows more consumers to have their needs and wants addressed, and developing standards of professionalism that inspire consumer confidence and build trust. To that effect, short term indicators would include increased consumer understanding of different types of advice, and advisers meeting required standards of professionalism, while long term indicators could include fewer unsuitable sales and higher consumer engagement in the market caused by improved perception of quality of services.

In relation to FAMR, the FCA’s outcomes and indicators focus on access, affordability, and quality of advice services. In particular, the FCA focuses on consumer needs, and looks at whether there currently is an advice gap caused either by the lack of access to appropriate advice or a mismatch between different consumer needs and the current offerings of the industry. The FCA is also looking at potential barriers to making advice or guidance services more affordable. Lastly, the FCA is also looking at ways of improving value for money for consumers, not solely based on costs, but also on additional features offered such as level of support and quality of service.

Market changes and future trends

The FCA’s call for input considers both changes in consumer needs, as well as changes to the market as a whole. Being a dynamic market, the FCA recognises potential opportunities in opening access to consumers such as by using automated advice services. The FCA is looking for stakeholder input on what the FCA should bear in mind when considering next steps.

The role of regulation

The FCA notes that regulation plays a key role in helping to deliver good outcomes for consumers, and in that sense the cost associated with regulatory compliance can be seen as the “cost of doing business well”. However, the FCA is looking for stakeholder input to best ensure that any regulatory intervention and associated costs arising from it do not negatively affect the market and by extension consumers.

A full copy of the call for input can be found here. The responses to the call for input will inform the FCA’s additional research that they will be carrying out in 2019, with conclusions anticipated to be published in 2020.

Our regulatory lawyers have vast experience in advising on a wide range of retail distribution and financial advice matters.  If you would like to discuss any of the points raised in this article or any related matters, please contact tom.dunn@burges-salmon.com, anna.davis@burges-salmon.com or heather.musk@burges-salmon.com.

Key contact

Tom Dunn

Tom Dunn Partner

  • Head of Regulated Funds and Financial Services
  • Regulated Funds
  • Financial Services

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