Carl Lamb: Pressurised advisers need regulatory clarity in 2020

As we start the New Year, it would be nice to feel that we are entering a period of more stability in the UK.

At the time of writing, Brexit is on the cards for the end of January, the government is gearing up to present a financial programme that it knows it can deliver now that it has a majority in the House of Commons - so everything in the financial garden is going to be rosy. Or is it?

We're still seeing many challenges to stability in the financial advice sector. External pressures such as tensions in the Middle East are always going to affect key market metrics such as the oil price. The fall-out from Brexit will also put pressure on the UK for some years to come as we rebuild our relationship with trading partners across the world.

Confidence in the UK's business sectors is still at a low and it's going to take a long time for industry and services to recover from what has been an extended lean period. Every sector is going to need 2020 to be a year of calm to allow it to gather its forces and start to grow again.

Under pressure

Financial advice firms have, in the main, managed to maintain profitability over the lean times as those with wealth have continued to need our help. However, I believe that many firms have shed clients who, once the figures are analysed, are actually costing us money rather than delivering a return for us. This has, sadly, widened the advice gap yet further.

It's a direct result of increased pressure on the industry from the regulator which has made us all process-heavy, hiking up our costs in the administration of clients' finances as well as increasing the cost of PI insurance across the board.

Regulation has also led to firms reviewing their service proposition, resulting in fewer, less flexible options being offered to clients: ad hoc transaction-based service has become the latest casualty of changing regulation as the FCA puts pressure on us to push clients into ongoing advice packages. Whilst this does deliver more consistency for clients, it has led to some clients opting out of advice - the very opposite outcome to that planned by the FCA.

What hasn't changed is the pressure on us as financial advisers to deliver advice that will never be challenged. With the FCA stance on various advice areas still woolly - defined benefit (DB) transfers and self-invested personal pensions (SIPPs) are just two examples - advice firms are still feeling insecure and that has to be bad for us as a sector as well as bad for our clients. #

Yes, DB transfers and SIPPs are areas that require very careful analysis and should be recommended with great caution, but they are both perfectly suitable outcomes for the right clients.

One moment in time

My plea to the FCA, the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme is to remember that advice is timely.

What I mean by that is that advice is given within the parameters that exist at a particular moment in time. A piece of advice presented in the Noughties will mirror the thinking at that time and should be reviewed within the context of the financial environment prevalent at the time of its delivery. Hindsight is a dangerous methodology for reviewing advice suitability.

That's not to say that bad advice is ever excusable, whatever the extenuating circumstances. I'm glad that our profession has tightened up on those who deliver unsuitable advice, particularly in DB transfer cases.

The Pension Gold Standard was a good idea and has made all good firms focus on formalising their DB transfer processes.

The downside is that many of those who are capable of delivering good advice about pension transfers are now running shy and are letting go of their permissions for this area. The regrettable result of this is that the client has less choice.

My wishes for 2020 are clarity, consistency and simplification. Column inches are being written about the new Chancellor's intentions in the March Budget with a promise of measures that will instigate renewal.

I truly hope that Mr Javid's Budget will deliver both calmness and confidence so that clients can consolidate their planning. It's time to allow our industry to look ahead to the longer term with clear policies and a commitment to keeping advice affordable.

Carl Lamb is director and Chartered financial planner at Smith & Pinching

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