HM Treasury and the FCA have published the final report of their Financial Advice Market Review (FAMR).

The final report details measures aimed at developing a market which provides affordable and accessible financial advice and guidance for everyone and contains proposals for increasing consumer engagement with financial advice.

The final report’s recommendations fall into three key areas:

  • Affordability – not all consumers can afford the financial advice they need.  In addition, not everyone wants or needs a comprehensive assessment of all of their financial circumstances and requirements.  The report states that more can be done to allow firms to deliver tailored services which give consumers advice on a more limited basis and also to allow firms to provide guidance which allows consumers to make their own decisions.  The report recommends that the regulatory landscape should be made clearer for firms, a clear framework allowing firms to develop more streamlined services should be created and new technologies should be used to drive down the costs of supplying advice.
  • Accessibility – a lack of consumer engagement holds back the development of the financial advice market.  This lack of engagement may be attributable to unaffordability, uncertainty about how to access advice, consumer mistrust of advisers and/or lack of confidence in engaging with advice.  The report recommends clarification of what financial advice employers can provide to employees without being subject to regulation, improvement of incentives aimed at encouraging employers to support employees financial health and greater flexibility in how long consumers pay for advice.
  • Liabilities and Consumer Redress – in order for consumers to have confidence in financial advice, it is necessary for appropriate redress to be available if they suffer as a result of poor advice.  This needs to be balanced with giving firms confidence they will not be exposed to unquantified costs if advice is professional and suitable.  The report recommends changes to how the Financial Services Compensation Scheme (FSCS) is funded (including risk-based levies, reforming the FSCS funding classes and increasing the use of the FSCS’ credit facility), provides proposals regarding how the Financial Ombudsman Service deals with consumer complaints (to increase clarity and transparency) and confirms that a blanket 15 year limit of liability is not recommended as this would not be in the interest of consumers.

Specifically, the FAMR has recommended that the FCA should establish an ‘Advice Unit’ to help firms develop their automated advice models.  The FCA is considering the impact of this recommendation and how the unit could be developed.  The FCA will issue a statement setting out its plans and proposals for implementing the Advice Unit and engaging with industry to support financial advice models.