In his final article for PFP, regulatory consultant Rory Percival takes a look back at his 30-plus years in the advice sector and gives his take on what needs to happen next to raise standards
I joined the sector in 1987 just before Black Monday. Many will remember, in those days it was two weeks training (mainly objection-handling) and on the road to sell to your friends and get referrals. Gosh, we really have come a long way.
Retail Distribution Review
Progress was slow initially – except for some very good, groundbreaking firms – and we were well into the noughties before significant progress was seen more widely across the sector. Highly controversial at the time, the Retail Distribution Review provided the catalyst for the greatest surge of improvement in the advice sector in my time. The increased qualification level was referred to as the professionalism stream but it was the ban on commission that had the biggest impact on the professionalism of advice firms.
Firms were challenged by the prospect of having to more clearly demonstrate the value of their offering. Particularly in the 2010–2013 period, firms reviewed their advice, investment and service propositions; and improvements that were already underway at a minority became widespread. It was at this time that ‘centralised investment proposition’ was coined as an expression.
In the noughties and early teens, the Institute of Financial Planning (IFP) led the way in promoting financial planning as opposed to financial advising. I don’t propose to get into the well-worn debate on the difference, but financial planning is a more holistic approach with cashflow planning at its heart. Many firms ‘saw the light’ and converted to planning but the IFP never managed to achieve this at scale.
Pension freedoms were the spur for the need for greater detail in planning clients’ retirement, while cashflow planning, once a niche tool, has now become mainstream.
"For me, the biggest issue for the advice market is the absence of challenge. It does not get challenged by clients, given there is information asymmetry and clients need to trust their adviser"
I still think the sector has some way to go before it meets its potential and can call itself a true profession (which is different from individuals being professional). There are a number of areas – capacity for loss, centralised retirement propositions, defined benefit transfers, governance – where the sector is not where it should be and needs to improve; in some cases just to meet Financial Conduct Authority (FCA) rules, let alone be professional.
Here is my take on what needs to happen:
1) Challenge: For me, the biggest issue for the advice market is the absence of challenge. It does not get challenged by clients, given there is information asymmetry and clients need to trust their adviser. It does not often get challenged by the markets (prior to this year, we had 10+ years of benign markets). It does not get challenged by the FCA (well, not adequately). As a result, it is not a competitive market and hence competition is not a driver for improvements. The very nature of this market is not going to change but firms should think about how they build challenge into what they do, to reassess their approach and really see it from the client’s perspective.
The Covid-19 pandemic has shown the benefits that challenges can bring because, from what I have seen, firms have responded very well to this and made improvements.
2) Regulation: In the main, the regulations are good. But there are inadequacies in the way the rules are applied in firms. Being blunt, the average quality of compliance staff is not good enough and there needs to be improvements here.
Yes, there may be issues about how the FCA deals with the rogue firms but I am mainly talking about how we improve the sector more broadly. In this light, I think the FCA needs to operate differently in the way it interacts with the sector to make clearer its expectations. Historically, it has produced good and poor practice guides (and did again in June this year – GC20/1 which is a must-read).
3) Professional bodies: In the past, where there has been a big issue to address in the market, the FCA has taken the lead in encouraging or requiring improvements (for example, around vulnerable customers). I think the sector, if it is to call itself a profession, should be taking a lead in this type of improvement. There are other issues that are current – centralised retirement propositions and environmental, social and corporate governance, etc – where there is scope for the sector to come together and take the lead in setting better standards. Of course, it is very difficult for individual firms and advisers to do this, so this is where I think these organisations should take more of a lead and that the FCA should also feed into this process via the professional bodies.
Don’t get me wrong – I think the sector is fantastic. But it’s also fantastically frustrating as it could be so much better, comparatively easily. I think the sector will get there but I am not hopeful about the speed of change during the next few years, unless there are some fundamental changes along the lines I have outlined. But I am optimistic in the longer run, especially as the next generation of advisers comes to the fore.
Rory Percival of Rory Percival Training & Consultancy Ltd