As The Heath Report Two shows 16 million consumers no longer have access to advice, the regulator is putting much emphasis on new entrants taking up the slack.
THR2’s research shows that, so far, nascent new distributions do not have the capitalisation or the market penetration to make any significant inroads into this market.
Any new entrant faces high barriers to entry if they seek to bring new recruits into the sector. They also face a market which liked commission as a method of payment.
Importantly, new entrants were promised an area of “simplified advice” in which a low-cost advisory market could flourish. After four years, no such market has been defined; not least because of the semi-detached nature of the relationship between the FCA and the Financial Ombudsman Service (Fos).
The FCA makes rules, but in its judgements Fos cannot be commanded to accept them. Fos has made it very clear it does not want to accept the concept of simplified advice as it does not want the scope of its judgements compromised by having to accept a two-tier advisory market.
This presents new entrants with a nightmare scenario. New distributions will need to invest heavily to create an advisory process with a sufficient scale and width to satisfy large numbers of currently disenfranchised clients. As there will be an emphasis on cost control, any new entrant will have to cut down heavily on the amount that is known about the clients and to try and make the assessment of the client needs and the solutions offered as formulaic as possible.
As long as this process is judged by the standards of the “simplified advice”, little danger might be expected. However, if Fos decides that claims made in the “simplified market” should be judged by full advice standards, then every case will be non-compliant by virtue of the information gathered.
Currently “simplified advice” cannot be defined thanks to Fos. Even if a definition was available, how many new entrants, and in particular their investors, would trust the regulator or its ombudsman to deliver a stable environment in future years? Their current treatment of trail commission creates an atmosphere of distrust.
So here we have the current state of regulation. After 27 years, the FCA, which is unaccountable to parliament, has an ombudsman which is unaccountable to it, while thanks to a lack of long stop, advisers are accountable for their advice for eternity.
Makes you proud to be British.
Garry Heath is editor of the Heath Report
