“My employer helps me with managing my finances”
Access to financial advice is a growing problem in the UK and the Financial Conduct Authority (FCA) sees this as one of its key priorities over the next few years.
To move this forward, the FCA launched a Financial Advice Market Review (FAMR) to identify the root causes. In March of this year, the FCA published its final report which will have some potential implications for employers.
The final report contains a number of broad recommendations which the FCA believes will stem the main causes of lower income customers not receiving advice. The key issues identified were:
- The economics of giving regulated financial advice and the shift to adviser charging means that it’s expensive and the cost goes directly to the customer.
- The cost of advice makes it unaffordable to a large percentage of the UK population.
- The availability of advice is limited as the financial advice community is shrinking.
The key recommendations were:
- Customers need to be able to receive financial help outside of the traditional ‘financial advice’ model.
- Current regulations placed upon financial advisers are too restrictive and need to change to allow for the provision of a guidance service which is clearly separated from regulated advice.
- The cost of giving advice needs to reduce.
- Technology needs to play a greater part in the future.
Overall the report makes it clear that the Retail Distribution Review, which removed the link between advice and commission, separated independent advice from restricted advice and introduced higher professional standards from advisers, was a “good start”.
The report concludes that the issues it found have led to an ‘advice gap’ and goes on to explain that the FCA believes that the financial services industry can address this problem through greater ‘automation’ of advice. Naturally, the report points to technology as having a pivotal role in making this happen.
Interestingly the FCA has also indicated that it sees employers playing a greater role in the delivery of financial guidance, provided they are protected from restrictive advice based regulation. This suggests that advice regulations will be reformed.
The regulator’s ambition of seeing employers as part of the solution may receive a cool reception from employers. However, future relaxation of regulations may allow for more support to be provided to employees who may otherwise be unable to receive any direction with managing their financial affairs. Some employers may see that this is a way of rewarding staff for their commitment to the organisation and a demonstration of their genuine care for the wellbeing of their staff. ‘Money worries’ is probably one of the biggest concerns people carry throughout life. If employers can provide help in this area, it’s very likely to materialise with better performance and greater loyalty.
Prudential is following the development of the FAMR with great interest, and we will continue to share with you the important decisions which may be of interest to you. If you would like more information, please download the final paper.