The Financial Conduct Authority (FCA) has admitted that it is difficult to measure the advice gap and its effects following regulatory change.
Speaking at a roundtable discussion, Martin Wheatley, chief executive of the FCA, said measuring the impact of an advice gap was difficult because it involves trying to measure “something that consumers are not doing”. However, he added it was a priority in the coming year.
The so-called advice gap follows the introduction of the retail distribution review (RDR) at the beginning of last year. It aimed to make financial advice and the fees firms charged more transparent for consumers.
This has led to some advisers and practices no longer being as profitable, and as a result they are targeting high net-worth individuals. In addition, RDR banned the payment of commission for advice in relation to investment products. The upfront cost is thought to be putting off some consumers who would otherwise have sought financial advice.
A survey published in December 2013 by the Association of Professional Financial Advisers (APFA) showed that nearly half of advisers had turned away clients following the implementation of the RDR. The organisation estimates that 60,000 customers have been priced out of the market.
Mark Hoskin, financial adviser and partner at London-based Holden & Partners, said, “The problem is that independent financial advisers now don’t really want to deal with clients with smaller amounts of money because the fee levels tend to be lower, and the regulation associated with the advice is exactly the same.”
He added that execution only and crowdfunding sites were trying to fill the gap. This, however, raises questions around if investors are educated enough to understand the associated risks and know what they are doing.
A previous poll of UK consumers found that investors continue to see value in independent financial advice. An advice gap could be detrimental to the financial health of investors.
Hoskin concluded, “Ultimately the advice gap is an unintended consequence of a piece of legislation intended to make financial services more transparent and easier to understand for the consumer.
“However, it may be that such good intentions have in effect closed down the advice process to the less well-off consumer. Hopefully an entrepreneurial way of dealing with these consumers effectively can be found and the FCA will be able to fast track this new methodology through their rulebooks.”
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