Time for real change
FAMR (Financial Advice Market Review) offers a great opportunity to improve regulation and Libertatem is convinced that it’s time to stop tinkering and exhibit bold thinking and bold ideas.
In mid November 2015, we initiated the idea of PAR – The Professional Advisers Regulator and the feedback has been truly excellent.
We conducted a straw poll of Libertatem members which rendered overwhelming support for PAR. We have had similar support in the media from advisers who have yet to join Libertatem. As a result, PAR will be at the centre of Libertatem’s FAMR strategy.
We believe by offering a separate regulator designed specifically for the Professional Advisers; PAR would do a better job for our clients than the FCA, at a lower cost. If we can cut costs; we can cut charges and become more affordable to more people. If we can cut bureaucracy; we will have more time to advise more disenfranchised clients. This delivers what the Government seeks from FAMR.
Exciting and credible!
In the second week of November 2015, Garry Heath met with MPs, Treasury officials, TSC members, Bank of England, FCA and PRA staff as well as other opinion formers. It was made clear to him that nothing is excluded from the Financial Advice Market Review and that Libertatem’s idea of separating Professional Adviser regulation into a defined lower cost area was found to be 'exciting and credible'.
The drive behind FAMR is the Government’s desire to increase the number of consumers receiving advice - the polar opposite of the outcomes of the last 30 years of regulation. In particular RDR has reduced the number of advisers available by 6,000. It has also halved the number of clients being serviced by each surviving adviser. The two issues have cut the capacity of the Professional Advisers sector by 10 million consumers.
The Professional Adviser’s contribution to FAMR’s aim of increasing the number of the advised must be to re-engage with as many of those 10 million as possible. This requires a major cut in two costs - regulatory and FSCS. From 1999 to 2014; the Adviser’s regulatory costs have increased threefold. By 2025, the same costs will have increased another fourfold. Libertatem estimates the current cost of the regime is in excess of 25% of fees. By 2025 it will be in excess of 50% - this is unsustainable.
Time for accountability
The current cost growth is a direct result of the FCA’s lack of accountability. It decides its own budget and its own priorities. It has an open cheque book, yours - or more accurately, your clients.
The majority of the current FSCS claims are product provider and regulatory failures being unloaded onto the adviser sector. At the current rate of increase they will double every 3rd year and that presumes the number of advisers remain the same.
It is time that the funding of FSCS is placed with all the sector’s consumers via the providers and platforms. If the FSCS costs are distributed across all holdings the percentage cost would be tiny and not as currently anti-competitive. If the FSCS costs continue only to be visited on current advisers - only the current clients of advisers will pay. This leaves the 10 million who no longer receive advice able to claim FSCS but not fund the process. This creates a spiral of decline where increasing costs are visited on ever decreasing numbers of advisers and clients.
It is time we concentrated on the priorities of Professional Adviser clients and satisfied them. The major benefit of a regulator designed for Professional Advisers is focussed regulation based on our actual risk to the consumer. Despite having over 70% of the market - Professional Advisers represent less than 1% of claims taken up by FOS and 2 in 1,000 of their successful claims.
So what are we asking for from FAMR? Simply that when the Chancellor announces the Review’s findings at the next Budget, his speech includes a commitment to seriously examine the creation of a Professional Advisers Regulator. Then we can do the detail.
Benefits of PAR
The biggest benefit of PAR must be in establishing confidence in the sector.
If Robo and other advice models are to be part of an adviser’s arsenal; we will need incoming investment which will only come when the investor has confidence that his investment is not prone to eccentric FOS retrospective judgements. Whatever the reality; that is certainly the perception that is holding them back.
The benefits of PAR are clear but the big question is it do-able?
In practical terms certainly; If PAR was staffed away from London and was established to deal with real issues; Garry Heath is convinced it can be done better for significantly less expense. Let us be clear this isn’t a rerun of FIMBRA – the self-regulation bus has left never to return. But by concentrating on the needs of our clients and making PAR properly accountable he is confident Libertatem can create a regime that is fit for purpose.
As importantly is politically possible?
From Garry’s conversations; he believes it is very do-able but only if advisers and their clients unite and fight for it – Now!