Article by Phil
Despite having a stated objective of increasing and improving access to advice, the Government seems to be doing everything it can to prevent this from happening. Whether this is by choice, or through a lack of joined up thinking is unclear.
For example, the Government seems keen to introduce a ban on so called contingent charging. That is where advisers only charge a fee when a client goes ahead and acts on the advice being given. The argument being that it is the adviser’s own interest to make sure they advise a client to make a transaction. That would mean that everyone would have to pay advice fees whether the advice was to do something or stay as you are. The unintended cost consequence of this, however, is that non-contingent fees would attract VAT, and that would add 20% to advice charges overnight!
Another area of cost pressure is coming from the increase in Professional Indemnity Insurance premiums as a result of the increase in the Financial Ombudsman Service compensation limit from £150,000 to £350,000. This limit has increased despite there being no evidence that the lower limit was penalising clients and with no limit to the timescale in which a claim can be brought. That is unique to the financial advice market and is having a serious effect on the ability of many firms to secure cover. That not only limits choice but the also costs as the premium increases are passed on to clients. Last year our premiums rose by 550%, who knows what that will be this year!
2019 has also seen the introduction of further rules under the Mifid II regulations. One of those is requirement for advisers to provide clients with at least an annual review as part of their ongoing service arrangements. Whilst we have always provided an annual review as a minimum, it appears that many other advisers haven’t. This is now leading to some advisers turning potential clients away where their assets don’t meet a minimum value, because the cost of providing an annual review is being deemed as too costly. Thankfully, this seems to be primarily a southern phenomenon, with some advisers suggesting that clients need a minimum of £500,000 to invest to be worth advising! That is certainly not our view but is another example of how new regulations are driving up advice costs and potentially reducing access to advice for many people.
On top of these increases in cost, advisers may also soon have to contend with product providers getting involved in advising existing clients. The FCA is considering the introduction of new investment pathways which are intended to be standard pathways to help clients who are not being advised to achieve a structured outcome. In itself that seems like a good idea, but the FCA is proposing that clients who haven’t changed their investments for 12 months should be treated as non-advised. That seems totally ridiculous to us. Why would we change a client’s investments every 12 months? But, it seems if we don’t then clients may face the confusion of being approached by their product providers asking whether they would like advice.
