Those of us who have been in the industry for a while will have greeted the Financial Conduct Authority's review of the advice guidance boundary like an old friend.
In my career, I’ve seen perhaps four or five consultations and reviews aimed at tackling this issue, from the Sandler review back in 2002 to the Financial Advice Market Review that followed the Retail Distribution Review, and on into the FCA’s regulatory sandbox.
It's a notoriously tough nut to crack, because it stems from what former Treasury minister Andrew Griffith described in parliament last year as "unintended consequences".
The FAMR recognised that RDR was a game-changer in terms of the professionalisation of the advice industry and the quality of advice people receive.
However, if you’ve been around as long as I have, you might also remember that in the run up to December 31 2012 advice firms began segmenting their clients for the first time.
Slowly but surely the bar was raised in terms of the minimum revenue clients needed to generate – often equated with the minimum wealth clients needed to hold – for firms to be able to service them.
This has created an advice gap, not only in the country but for firms themselves, who have a gap in their ability to service clients who don’t today have the asset base that makes full advice economic, although they may do in the future.
In many firms, smaller clients contribute material amounts of revenue and profit, but many others cannot make the maths work – and those who can are finding it harder and harder.
The consumer duty is another step change for the industry, but the FCA recognises that it risks putting advice further out of reach without deliberate measures to offset the unintended consequences.
Just before Christmas I spoke to a highly successful chartered firm that has grown continuously over two decades, but which has a fairly large cohort of smaller clients. Given the increased cost to serve under the new regulation, the firm genuinely doesn’t know how it will retain this part of its client base.
The latest attempt to address the issue is therefore welcome. Any regulation that preserves the quality of advice and the standard of consumer protection, but at the same time allows firms to engage with both new and existing clients in a way that works economically, has to be a good thing.
But this is an entrenched problem that has proved resistant to previous efforts. Could progress really be on the cards this time?
The first of the regulator’s proposals – that it will provide more examples to clarify the advice guidance boundary – can only be helpful. Firms currently steer clear of anything they perceive as skating close to the line, particularly when it comes to guidance in relation to risk.
