I have been critical of FAMR
Mike Morrison, head of Platform Technical, AJ Bell, compares the findings of the Financial Advice Market Review (FAMR) and a recent report from the International Longevity Centre and sees some clear messages that everyone can get behind
There have been a great many things going on in the financial service world this year and in the background we have had the Financial Markets and Advice Review (FAMR). It started a couple of years ago, had no real end date and, at times, has simply been a collection of further actions. If I am honest, I have perhaps been a bit over critical, mainly because it a subject that I very much support.
Just as a reminder, in the new post-RDR world, the aim of FAMR was: “to stimulate a market to deliver affordable and accessible financial advice and guidance to everyone at all stages of their lives.”
Two years later in June 2017 the FCA printed the FAMR Baseline Report in which it identified the three main themes it will use to measure the success or failure of the review. Unsurprisingly, given the aim of the review, the three themes were accessibility, affordability and quality of advice. To monitor progress on these three areas the FCA has carried out what it terms “state of the nation” research into the UK’s current use and needs of financial advice. This will be the benchmark and then the same themes will be tracked on an annual basis to see how things progress.
Some of the findings of this snapshot:
• Just 6% of UK adults (3.2 million people) received financial advice in the last 12 months.
• 25% of people (12.8m people) have not had advice but might have a need for it.
• Of those who have taken advice, just 3% used automated or ‘robo’ advice – with the 18-34 age bracket most enthusiastic.
• There has been “muted” interest in workplace advice but more demand for workplace information and guidance.
The research considered the number of advisers in the market as a factor under accessibility, finding that the number of staff who advised on retail investment products at the end of December 2016 was approximately 34,600. This included 5,218 firms of financial advisers, with 25,611 individuals advising on retail investments.
I am not sure accessibility is the biggest issue here. The one for me that features high on the list is the cost of advice. Indeed, from an adviser perspective, the top three barriers are most likely cost, uncertainty around regulations and a lack of clarity over what is regulated advice.
The research clarified that nearly half (46%) of UK adults would be willing to pay for financial advice if the costs were “reasonable”. However, the reasonable figure was set at about £500 leaving a gap between the supplying advisers and the consuming public.
On the final issue of quality the research found that most people were satisfied with the advice they received (trust and face-to-face advice were cited as real positives) and found that 93.1% of cases delivered suitable advice, unsuitable advice in 4.3% of cases and unclear advice in just 2.5% of cases.
So all well and good – we now have a starting point. However, to build on this we need to challenge consumer’s understanding of the value of financial advice.
To this end, I was interested to see some new research from the International Longevity Centre entitled: “The Value of Financial Advice”. The research finds that those who received financial advice in the 2001-2007 period did better than an equivalent group who did not receive such advice during 2012-2014.
The Report looked at the impact of financial advice on two groups. These were defined as the ‘affluent’ group and the ‘just getting by’ group, with particular financial criteria to define the two groups.
The conclusions make interesting reading:
• The ‘affluent but advised’ accumulated on average £12,363 (17%) more in liquid financial assets than the ‘affluent and non-advised’ group, and £30,882 (16%) more in pension wealth (total £43,245).
• The ‘just getting by but advised’ accumulated on average £14,036 (39%) more in liquid financial assets than the ‘just getting by but non-advised group’, and £25,859 (21%) more in pension wealth (total £39,895).
The report also found that 9 in 10 people are satisfied with the advice received and that key factors in the process were trust in the adviser and the individual’s level of financial capability.
The recommendations from the report were geared towards trying to raise demand for financial advice, including:
• Advice to support the auto-enrolled – duty on employers to ensure staff can access the best information and advice on their pensions.
• Default guidance for decumulation – to make sure people can get crucial information and optimise the outcomes.
• Helping to create informed consumers.
The message seems clear – if you take advice you will be better off. Perhaps there is a lesson to be learned for FAMR.
It is good to see that many of the conclusions mirror the FCA baseline research, such as the quality of advice and how people value their adviser relationship. These two alone could assist in changing perceptions of cost.
To me, these are some of the messages that, if used correctly, could assist in a successful FAMR. To fulfil the word ‘correctly’, let’s all work on some joined up conclusions.