The Financial Advice Market Review is a recent initiative organised by the government and the FCA to investigate financial advice given to customers across the UK.
Its main aim is to ensure firms are offering suitable advice to their clients, and to assess whether or not current regulations and legislations restrict financial institutions from offering services to less well-off clients.
Why is it needed?
According to an ONS report released in 2012, the top 10% of households in the UK are 850 times as wealthy as those at the bottom. They have an average of £1.2million tied up in cash, property and pensions, whereas those in the less wealthy bracket have just £4,400.
It’s little wonder that many people consider investing to be the sole preserve of the rich and successful. The Financial Advice Market Review seeks to redress the balance and make investing a more viable option for everyone, regardless of social or economic background.
What will it accomplish?
According to Harriett Baldwin, economic secretary to the Treasury, the review is focused on supporting ‘working people at every stage of their lives’ and making sure ‘consumers can access high quality and affordable advice so they can make informed decisions with their hard-earned money.’
The Financial Advice Market Review seeks to:
- Enable all UK consumers, regardless of income, to make effective decisions regarding their finances.
- Encourage the investment market to broaden, offering financial advice to all consumers.
- Create an environment that enables financial institutions to offer competitive advice services, whilst adhering to these regulatory guidelines.
- Make sure all companies offering financial advice adhere to the outlined principles.
- Examine whether or not current regulatory guidelines should be revised.
- Explore the option of introducing a ‘safe harbour’ to limit the liabilities of advisers.
- Determine whether or not certain regulations and rules impact on the affordability and general availability of certain financial products and advice.
Who benefits – the clients or the firms?
Actually, it benefits both. The customer is able to have access to better advice which is more suited to their current financial situation. The bank or financial company is burdened with less liability should an investment product underperform.
Chris Hannant, Director General for the Association of Professional Financial Advisers, states: “We welcome government recognition of the need to examine the legislative barriers to accessing affordable financial advice. We believe there needs to be a fundamental rethink of the current regulatory environment, particularly around liability.”
He also added: “Consumers need to understand that investments can never be 100% risk-free.”
How will it impact on claims for investment mis-selling?
One major concern is that this will adversely impact on people’s ability to seek compensation if they’ve been mis-sold an investment product.
However, the review certainly does not seek to prevent people from seeking compensation where due. Instead it will be reviewing the assignment of liability, which currently often penalises innocent financial institutions for the poor conduct of others.
The hope is that the need to seek compensation will naturally diminish with the focus firmly placed on providing good financial advice in the first place.