Advisers have voiced support for MP Andrew Tyrie (pictured) and the Treasury Select Committee (TSC), following his criticism of the Financial Conduct Authority (FCA) over the impact of the retail distribution review (RDR), regulatory fees and execution-only services.
The TSC regularly scrutinises the regulator, but rarely does the advice sector receive as much airtime as it did last week when FCA chief executive Martin Wheatley and chairman John Griffith-Jones were hauled in for their biannual progress report.
Despite such high-profile issues as bankers’ bonuses and the ongoing Libor investigation, Tyrie and his cohorts decided to turn the spotlight on the FCA’s regulation of financial advisers.
RDR questions set the tone
The tone for the session was set early on as Mark Garnier, TSC member and Conservative MP for Wyre Forest Mark, launched into questions on one of his specialist subjects: the RDR.
He asked Wheatley (pictured) whether he thought the reform could be considered a success, pointing out there were ‘substantially fewer’ advisers than three years ago.
The grilling did not stop there, as Griffith-Jones and Wheatley then faced questions over consumers’ confusion about the difference between advised and non-advised services, with Tyrie seeming particularly unimpressed with their answers.
Tyrie then finished with a flourish, putting the pair under pressure over the regulator’s refusal to reimburse advisers to the tune of £118 million, for regulatory fees they have paid over the past five years. He said there was a ‘strong case’ for the FCA to compensate advisers for ‘overcharging’ them.
Advisers’ praise for Tyrie
Tyrie’s approach has won praise from advisers, who view him as a political figure with the profession’s interests at heart.
Neil Shillito (pictured), director of Norwich-based SG Wealth Management, was encouraged by the issues raised in the session. ‘I’m a great fan of Andrew Tyrie. He is raising important issues. I think he has a very good grasp of the retail financial services sector.’
Shillito felt that Tyrie understood that the vast majority of smaller advice firms put clients at the heart of their businesses and have a ‘decent ethos’.
‘He understands we are not in the business of ripping clients off or giving bad advice, because we have a decent ethos and [it does not benefit] an adviser to rip his clients off,’ he said.
Keith Churchouse, director of Guildford-based Chapters Financial, agreed Tyrie’s views often reflected those of advisers.
Using ‘FSA speak’
Since the FCA took over from the Financial Services Authority (FSA), it has taken some actions that have won plaudits from advisers, including pushing back capital adequacy requirements to give firms room to breathe after the RDR. Despite the change in name and approach, the TCS did not always see the difference.
At one point, referring to the FCA’s predecessor the Financial Services Authority (FSA), Tyrie told Wheatley he was using ‘FSA speak’ to avoid giving straight answers.
Speaking to New Model Adviser® after the session, Garnier said he did not think Wheatley and Griffith-Jones ‘gave a good account of themselves’.
‘It was a real struggle to get any straight answers from them. I have respect for them, but I thought the meeting was quite bizarre in many respects,’ he said.
Adviser numbers in a spin
One of the most notable pieces of spin from the FCA was over adviser numbers.
When asked if the RDR could be seen as a success, Wheatley told the committee: ‘It’s much more transparent; consumers are much better served now… it’s a professionalised industry and there are more advisers today than last year.’
According to FCA statistics published in January, the number of financial advisers, not including bank advisers, increased from 20,453 on 31 December 2012 to 21,881 on 10 January 2014.
However, adviser numbers have fallen by 1,906 since the run-up to the RDR. An estimate compiled by RS Consulting for the regulator stated there were 23,787 financial advisers in the summer of 2012.
Chris Hannant, director general of the Association of Professional Financial Advisers, said: ‘What [the FCA] said is true that the numbers have gone up since RDR, but they’ve gone up a little bit and in the preceding couple of years they came down a lot. It’s not just the bank advisers. To say the numbers have gone up is disingenuous at best.’
According to Garnier (pictured), Wheatley was using ‘smoke and mirrors’ and ‘selective statistics’ to give the view the FCA wanted.
‘We all know there is an advice gap… He was trying to pick bits that suited his argument about everything being fine rather than looking at the overall picture,’ he said.
Like Tyrie, Shillito was underwhelmed by the FCA’s performance and its failure to differ from the FSA. He said the regulator’s refusal to admit it should refund advisers for regulatory fees ‘slightly undermined’ the good work it has done.
In October 2013, the FCA proposed changes to the way it allocates fees for investment intermediaries. Under the proposals set to come into force in April, advisers will pay £2.84 for every £1,000 of income, instead of £6.89 for every £1,000, as they have done previously.
The FCA said the changes were proposed to address an ‘anomaly’.
Calls to reimburse advisers
The FCA’s proposals to fix this have been welcomed, but also resulted in calls for the regulator to reimburse advisers for the higher fees they have paid previously.
Tyrie asked whether the FCA was considering compensating advisers since there was evidence of firms being charged for a higher level of supervision than they should have.
‘Would you be prepared to review this and would you be able to reconsider this? On the basis of the evidence that has been presented to me there is a strong case for compensation, for returning this money; a strong case. This money clearly should not have been charged and these firms have been unnecessarily disadvantaged,’ he said.
Wheatley has previously dismissed calls to refund advisers. He told Tyrie the FCA set out a consultation on fees every year, which was agreed upon by the industry.
Shillito said: ‘His [Wheatley’s] response to the select committee was a classic case of management speak and obfuscation. The point is that they made a good old-fashioned screw-up. What they’re really saying is we can’t be bothered to sort it out.’
Advised versus non-advised confusion
Griffith-Jones and Wheatley also faced tough questions on the differences between advised and non-advised services.
Tyrie (pictured) was unhappy that consumers could be left confused as to whether they had received advice when buying products from some execution-only websites.
Wheatley said the FCA was working on simplified advice and planned to clear up this confusion. He said there was a ‘narrow line’ between advised and non-advised, and that consumers could sometimes be under the impression they had received advice from an execution-only service.
Wheatley said the FCA planned to publish a consultation on the subject by the end of the first quarter.
Simplified advice models
Griffith-Jones (pictured above) said he was working with firms on simplified advice models and exploring how effective automated systems could be for giving information on products.
‘It may not be a perfect answer, but it is cost-effective for a relatively small amount of money,’ he said. ‘My view is that we should encourage innovation in this area. Ultimately, we will have to take decisions about whether it is good enough, but we should not let the perfect be the enemy of the good.’
Establishing best practice
Peter Smith, head of distribution engagement at the Tax Incentivised Saving Association, has been working with the regulator and a panel of firms to establish best practice in this area.
‘The FCA is really listening to the group and what is working within that group, but there is confusion,’ he said. ‘We want to get clarity on what you can have in your proposition, how far you can use a tool, how you construct your panels and how many funds is enough, and so on.’
Smith said the FCA was being helpful and hoped the group would come to a conclusion later this month.
Pete Matthew (pictured), managing director of Cornwall-based Jacksons Wealth, was happy to see simplified advice getting attention.
‘Simplified advice has taken a backseat, so to my mind it hasn’t been dealt with effectively enough to be really doing anything with it,’ he said.
Matthew said it was a piece of the RDR that barely any advisers had looked into or taken up, because it still required the same regulatory onus as full advice and did not seem cost-effective as yet.
‘It has been lost in the bigger picture and [if improved] it could really be excellent,’ he said. ‘A consultation would be excellent. If there was a way I could implement it easily I would definitely look to adopt it.’