Since the Retail Distribution Review took hold in the UK in 2012, consumers have been turning their backs on advisors. The UK's largest wealth management trade body has published a list of remedies for this and other regulatory problems in the financial advice business.

PIMFA believes that advisors, regulators and the Government ought collectively to create an environment where more consumers receive advice, the cost of which has to be paid for upfront in accordance with the RDR. This would be profitable for its members and, it surmises, good for consumers also. The void of financial advice that HM Government created in 2012 when it introduced the RDR and stopped customers from being able to choose how to pay for advice has long been known as the 'advice gap.'

The trade body says that the UK’s final escape from the clutches of the European Union is a golden opportunity to reconsider the practical application of regulation, review the structure of the FCA's rulebook and change the rules to suit the British financial market better. PIMFA wants the rulebook to work better for advisors.

PIMFA calls on the Government to:

• review its definition of the word 'advice,' which springs from European legislation and ought not to;
• review the regulatory perimeter;
• make the approval of financial promotions a regulated activity and strengthen regulatory controls in relation to the exemptions for high net worth and sophisticated investors;
• improve on-line protection by extending the Online Safety Bill to cover scams and other financial harm;
• optimise something that it calls "the financial capability strategy"; and
• promote the value of advice and the advice sector to the public and demand effective sign-posting to advisory services.

The FCA, in PIMFA's eyes, ought to:

• write rules to govern "a simplified advice service which also enables the development of flexible hybrid digital/face-to-face models;
• review its rulebook to make the regulatory environment clearer, effective, proportionate, cost-efficient and 'flexible' enough to allow for and encourage technological innovation;
• review and improve its supervisory regime; and
• promote the value of advice to the public.

PIMFA calls on the industry to:

• promote a greater understanding of the value of advice and the opportunities that it can help consumers to access;
• develop new cheap services to provide effective advice to a wider market; and
• promote high standards of behaviour and competence throughout the advisory sector and "increase professionalism" - a phrase that presumably calls for more training and qualifications.

By their nature, the vast majority of financial products and instruments are complex and the information asymmetries present in financial services tend to be more pronounced than they are in other sectors, hence the need for good advice.

The exemption for high-net-worth and sophisticated investors

Unauthorised firms can rely on exemptions in the Financial Promotions Order to send financial promotions to high-net-worth and sophisticated investors without having to involve authorised firm or obey the FCA's rules. PIMFA accepts that there is value in the exemption, but says that the existing regulation is not stringent enough. This is because retail consumers are ending up with unregulated products which inevitably fail, resulting in bad results for them and - the greatest bugbear of all for PIMFA's member-firms - claims on the Financial Services Compensation Scheme.

PIMFA wants HM Treasury to provide clear rules for simplified advice, which it should limit to a range of designated safer products that are suitable for a wide range of consumers. There should be clear guidelines that delineate the main elements of suitability; there should be a different standard of fact-find; there should be "limited liability" (presumably not of the corporate kind) and redress, with disclaimers letting advisory firms off the hook to a far greater extent than today. PIMFA expresses this desire by writing: "If the limits and scope of the advice were explained and made clear, the consumer should not have recourse in relation to matters outside that scope."

A review of the rules that the EU has imposed on the UK in respect of its Markets in Financial Instruments Directive or MiFID is another item on the agenda. Rules that have had deleterious and unintended consequences include:

• disclosure-based investor protection rules in which increasing amounts of scarce and expensive resource is devoted to tasks that increase work for firms and costs to consumers but offer no additional benefit, while creating growing amounts of unread paper;
• product governance rules; and
• a requirement for annual reviews.

The regulatory perimeter

PIMFA thinks that the FCA needs more power to intervene in finance to stop mis-selling and scams on the perimeter of its regulatory patch. It also ought to devote more resources to doing so. It is asking for a serious analysis of the regulatory perimeter and a review of product failures. It wants HM Government to reconsider the proposals made by the Treasury Select Committee in its report on the FCA’s Regulatory Perimeter in August 2019. It is worth repeating the text of these recommendations (which PIMFA may or may not like) in full.

"We therefore recommend that the FCA be given the formal power, and necessary remit to be able to formally recommend to the Treasury changes to the perimeter of regulation, where that would enhance its ability to meet its objectives, in particular to prevent consumer harm. It should set out any costs, both to firms and consumers, from such a move at the same time. It would then be for the Treasury to consider such a recommendation promptly. All such recommendations and Treasury replies should be publicly disclosed. This would formalise the relationship described by the Minister, and in so doing provide greater transparency and focus to the process. (Paragraph 31.)

"The FCA must not in future be constrained, or feel constrained, from providing warnings on financial products that may cause consumer detriment. The FCA should be given the remit to highlight the risks faced by financial services consumers including where an activity is beyond the perimeter of regulation. This should be written into the relevant primary legislation, and include any necessary powers needed to fulfil that remit. This would allow the FCA to identify and provide clear warnings about products and activities that might pose risks to consumers, without fear of breaching its remit. In providing such a remit, the Government should ensure that the FCA has the power to act swiftly and without undue restraint as it sees risks arise. (Paragraph 34.)"

Financial Promotions, high risk investments and online harm

The rules should ensure that retail customers do not invest in unregulated, highly risky investments. This is a rehash of the old argument that a firm cannot be truly compliant if the products with which it deals are not fully compliant. PIMFA therefore wants HM Government to make the approval of financial promotions a regulated activity and also to tighten up the provisions which allow unauthorised firms to send financial promotions to HNW/sophisticated investors without needing to involve authorised firms, and without being subject to FCA rules. Advisors use online facilities more and more to promote these highly risky unregulated products, so PIMFA believes that the FCA should acquire new powers so it can take down more online advertisements that lead HNWs to make bad decisions.

The wealth management trade body has already criticised the FCA and the FSCS in a scathing paper entitled FCA Supervision - fit for purpose? Many of those criticisms have resufaced in the present paper.