The Financial Conduct Authority has published a progress report on its Financial Advice Market Review, alongside a consultation that sets out proposed guidance, but reactions in the pensions industry show there is still a long way to go.
The FCA and the Treasury’s FAMR final report was published in 2016, and made a number of recommendations on how to improve the accessibility and affordability of financial advice and guidance to consumers.
The government and regulators should consider firmer targets to focus the minds of policymakers and the wider industry
Tom Selby, AJ Bell
Its latest document shows how much headway the City watchdog has made in tackling the obstacles affecting consumers’ financial wellbeing in terms of accessing advice, a matter that has become even more salient since the introduction of freedom and choice.
Advice and regulation
Some of the progress made includes the FCA’s guidance consultation, which examines four of the FAMR’s recommendations, including a proposal for a new employer and trustee factsheet developed by the FCA and the Pensions Regulator.
The consultation stated that the factsheet “aims to provide an outline to employers and trustees on how they can support informed decision making on financial matters by employees or members without stepping over the boundary into regulated advice”.
Elsewhere, the consultation is designed to provide “greater clarity on the regulatory framework around streamlined advice services”, which include both robo-advice and face-to-face advice.
One of the FAMR’s recommendations was to establish a Financial Advice Working Group to support progress. This was completed last year, and the group has published three reports looking at financial wellbeing in the workplace, consumer explanations of “advice and guidance”, and a list of rules of thumb and nudges to improve financial wellbeing.
Financial wellbeing at work
One of the working group's rules of thumb tells people to “pile into your pension – it’s your future income”.
However, Kate Smith, head of pensions at Aegon, said people might struggle to understand exactly what “piling into a pension” means. “It’s going to be about bringing this to life to actually make this nudge work,” by using online tools, for example.
Smith said that, in general, the rules of thumb “play a very strong part in relation to the financial wellbeing portal” that the working group is looking to develop with the Money Advice Service. This portal offers employers a one-stop shop to help staff manage their money, according to the group's financial wellbeing report.
Encouraging employers to help improve financial wellbeing “is the right way forward, because they are at the heart of saving, certainly for pensions”, said Smith.
However, “I do think there’s a long way to go… to try to encourage employers to do more”, she added.
Hugh Savill, director of regulation at the Association of British Insurers, said about the FAMR progress report: “It is extraordinarily difficult to produce rules for the advice market that actually allow everybody to get the advice and guidance they need.”
He noted that robo-advice is part of the answer because it is more affordable and accessible than face-to-face advice. However, “it’s not the whole answer” and “you still need a sensible legal framework”, he said.
Regarding consumer explanations of guidance and advice, Savill said: “A tiny [percentage] of consumers would know that there was a difference between advice and guidance in the first place, let alone recognise it when they were trying to talk it through with their adviser.”
Firmer targets needed
Tom Selby, senior analyst at platform provider AJ Bell, said the FAMR had not lived up to expectations so far.
“When the FAMR was first launched, we were promised radical reform,” he said. But, “while it is still early days, what we have seen so far is unlikely to significantly boost either advice take-up or affordability”.
The jury is still out on robo-advice
The pensions industry must focus on technology and consumer engagement to keep up with changing demographics and work habits, but opinions are divided over whether robo-advice is the best solution.
Selby said progress has been made against the FAMR recommendations, but argued that those recommendations “are fairly lightweight”.
“The government and regulators should consider firmer targets – for example aiming to increase advice take-up by 10 per cent, say, by 2020 – in order to focus the minds of policymakers and the wider industry,” he said.
“The nascent robo-advice market could help, but policymakers cannot expect this to do all the work.”
In terms of other possible measures, Selby suggested that an advice voucher system would help people access advice.
“Alternatively, savers could be allowed to use all three of their £500 advice allowances at once – this would at least pay for a full advice session,” he added.
