Financial Advice Market Review - FCA

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Financial Advice Market Review Final report

March 2016

Financial Advice Market Review – Final Report

Contents

Foreword

3

Executive summary

5

The Review’s policy recommendations

9

1

Introduction

13

2

A new approach to financial advice 2.1 Supply 2.2 Demand 2.3 Gaps in the current market for financial advice 2.4 Conclusions

17 17 20

3

4

5

6

24 25

Affordability 3.1 Clarity on the advice boundary 3.2 Clarity on regulatory responsibilities associated with guidance 3.3 A clear regulatory framework to deliver streamlined advice 3.4 Costs and the role of technology

27 28

Accessibility 4.1 The role of employers in providing help on financial matters 4.2 Taxation 4.3 Adviser charging 4.4 Consumer access to their financial data 4.5 Terminology 4.6 Nudges and rules of thumb

42

32 33 39

43 44 45 46 48 49

Liabilities and consumer protection 5.1 The Financial Services Compensation Scheme 5.2 Professional indemnity insurance 5.3 The Financial Ombudsman Service 5.4 Longstop

52 54 54 57

Next steps 6.1 Timeline for recommendations 6.2 Related initiatives

59 60 64

March 2016

51

1

Financial Advice Market Review – Final Report

Annex A

Glossary of key terms

66

B

The Expert Advisory Panel

68

C

List of non-confidential respondents

69

D

Data from the Financial Ombudsman Service

73

2

March 2016

Financial Advice Market Review – Final Report

Foreword

The Financial Advice Market Review (FAMR) was launched in August 2015 in light of concerns that the market for financial advice in the UK was not working well for all consumers. The aim of the Review has been to explore ways in which Government, industry and regulators can take individual and collective steps to stimulate the development of a market which delivers affordable and accessible financial advice and guidance to everyone, at all stages of their lives. The Review has taken place against a backdrop of an increasing need for individuals to take more responsibility for their own financial future. Social and demographic changes such as our ageing population, changes in the housing market, and changing employment patterns, have combined to make the decisions people face more complex and varied. People are, however, making a greater number of these decisions without any, or with only limited, advice or guidance, because of an increasing use of technology and a greater awareness of the cost of advice. This is compounded by a distrust of financial services companies. The Review has also taken place alongside the introduction of some of the most far-reaching reforms to the UK’s pension system in a generation, with the introduction of pensions flexibility in April 2015. It also follows the Retail Distribution Review (RDR), which was introduced three years ago to address the root causes of problems that had persisted in the retail investment market. The RDR aimed to improve the level of professionalism within the intermediary sector, remove the potential for commission bias and enhance consumers’ understanding of the services they were receiving. The Review has explored the supply and demand sides of the market for financial advice and guidance, the barriers to consumers accessing these services and the potential remedies. FAMR launched a public Call for Input on 12 October 2015, and the Secretariat subsequently engaged with a wide range of stakeholders – representing both the industry (including large and small companies) and consumers. We