'FCA needs to bring back the maximum commission agreement'

The quote is often used to refer to those who believe in something simply because it makes them feel good about themselves. It does not matter if what they believe is true or not.

So, what does this phrase have in common with those whose job it was, and is, to ensure that Financial Conduct Authority regulation works for all?

The FCA has just published a paper entitled “Greater support for people’s financial decisions, under regulator and government proposals”.

The platitudes quite take my breath away. 

Sarah Pritchard, executive director of markets and international at the FCA, says: “We want to open the door for more people to get the right advice or support to manage their money at the time they need it and at a cost they can afford.

"This review will help us produce new rules to deliver this important step change for industry and consumers. It’s important we get this right and we welcome feedback on whether the proposals are right for consumers and for businesses."

This comes about as the FCA’s Financial Lives survey found that only 8 per cent of UK consumers received full financial advice in 2022 because it was just too expensive for hard-pressed, austerity-driven lives.

Bim Afolami, economic secretary to the Treasury, says: “The gap between holistic financial advice that is unaffordable for many and guidance that is free to access but not personal to the consumer is simply too vast. This so-called advice gap is excluding people with modest investments who are looking for support that doesn’t break the bank”. 

The conclusion seems to be that “a new form of simplified advice that makes it easier for firms to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest” must be found. 

Let’s rewind some 18 years to restore some perspective.

It was the infamous Gleneagles speech in September 2006 from Sir Callum McCarthy, former chairman of the then Financial Services Authority, which laid the groundwork for the overhaul of the UK financial services retail distribution business model, something now referred to as the RDR.

As almost 18 years have passed, this is a great time to reflect on his six RDR pillars of wisdom:

1. An industry that engages with consumers in a way that delivers more clarity for them on products and services.
2. A market that allows more consumers to have their needs and wants addressed.
3. Remuneration arrangements that allow competitive forces to work in favour of consumers.
4. Standards of professionalism that inspire consumer confidence and build trust.
5. An industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly. 
6. A regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.

In laying out his vision, McCarthy reckoned the industry would require a “collective shift away from product and provider bias, toward an incentivised and regulated distribution system”.

What has been achieved then?

Only the professional standards aspect has been a success, and even then, for the average consumer in the street, that really means nothing. That is what the regulator did not and still does not understand.

Many adviser and provider firms are no longer with us, while distribution has changed beyond all recognition leading to job losses – foresights strangely something not mentioned in the ‘six pillars thinking.