The FCA’s latest communication to CEOs and Directors of financial advice firms and investment intermediaries outlines their evolving priorities and expectations for the next couple of years. For any firms helping consumers make complex financial decisions, staying aligned with these expectations is critical.
The letter is clear: the financial advice sector is changing, driven by an ageing population, technological advancements, economic shifts, and regulatory developments. To remain not only compliant, but also competitive, firms must proactively address these changes while ensuring their clients consistently receive good outcomes.
In this blog, we’ll walk through the FCA’s key points, what they mean for your business, and the practical steps you can take to meet their expectations and importantly, stay ahead of the competition.
The Evolving Landscape of Financial Advice
The FCA acknowledges the crucial role of financial advisers in helping people navigate increasingly complex financial landscapes. With 4.4 million consumers paying for advice last year, the sector is significant—but there’s also a growing number of people who aren’t accessing professional help. This advice gap represents both a challenge and an opportunity. Firms can grow by finding innovative ways to support new markets but must do so in a way which is scalable and navigates the challenges posed by the FCA.
FCA’s Key Priorities
The FCA outlined three core priorities for the next two years:
1. Reducing and Preventing Serious Harm
The FCA will focus on key areas where consumers are at risk of harm, particularly in retirement income advice and ongoing advice services. While firms have always had a requirement to ensure their advice models are robust and serve the best interests of their clients, it is noticeable the FCA is placing additional focus on those areas which can have life-altering consequences and there is no doubt that how and when a client accesses their pension provision is such an area.
2. Monitoring and Testing Higher Standards Under Consumer Duty
It’s clear the intention of Consumer Duty was to drive higher standards across the industry. The letter sets out the FCA’s expectations of firms being able to demonstrate their ongoing compliance and evidence how they are ensuring good outcomes for their clients. This will be done through actively monitoring and testing how well firms meet these standards, so it’ll be crucial that firms regularly review and adjust their practices while also having evidence and MI to back that up.
3. The Advice Guidance Boundary Review
The boundary between advice and guidance is being reviewed, presenting potential opportunities for firms to broaden their services and reach. Firms should engage actively with this review and consider how they can support clients who fall on the “guidance” side of this divide.
Retirement Income Advice: The Spotlight is On
The growing retirement market is a key focus. In March 2024, the FCA published findings from its review of retirement income advice, highlighting both good and bad practices. It was clear they felt there was work to do in this area and the next two years will see them scrutinising firms active in this space further, analysing whether they have adapted and improved their processes in line with the original review’s findings.
Ongoing Advice Services: Ensuring Value
Currently, 90% of new clients are placed into ongoing advice arrangements, and these services now account for 80% of advice revenue. However, there are concerns that some clients may be paying for services they don’t receive or that aren’t suited to their needs. Its vital firms can demonstrate clear positioning of their ongoing advice proposition and the suitability of recommendations in this area. Executing regular reviews, transparency around fees and accurate MI are all essential factors in a firm’s ability to demonstrate effective operations in this area.
Polluter Pays: Holding Firms Accountable
The FCA is also working to ensure that firms responsible for financial harm bear the costs. This places a greater onus on firms to hold sufficient capital to meet any potential liabilities and that, when firms exit the industry, any potential liabilities are fully addressed and accounted for beforehand. The FCA will closely scrutinise any firms trying to avoid redress, and failure to meet liabilities could result in regulatory or even legal action.
Consolidation in the Industry: Proceed with Caution
The trend towards consolidation in the advice sector, while providing opportunities, also introduces risks. The FCA is concerned about harm caused when mergers or acquisitions aren’t handled properly. Whether you’re acquiring a firm or being acquired, ensuring the transaction prioritises good client outcomes must underpin the deal and the due diligence process must be thorough. Holding sufficient capital and having a credible debt-servicing plan are also essential, especially where a firm’s complexity grows post-acquisition.
What You Can Do to Stay Compliant and Thrive
The FCA’s message is clear: firms must be proactive in adapting to regulatory changes, ensuring good consumer outcomes, and future-proofing their business models. Some key actions your firm can take are:
1. Review Your Retirement Income Advice Processes
Look at the findings from the FCA’s review and assess whether your firm is providing advice that is fit for purpose and aligns to these expectations. Poor practices can lead to significant harm, so regular training for advisers and comprehensive process reviews are crucial to demonstrate ongoing compliance with the regulator’s expectations.
2. Evaluate Ongoing Advice Services
Ensure the services you’re offering are truly delivering value to your clients and you can evidence you are not simply placing the majority of clients into these services systematically. This means being transparent about costs, keeping detailed records and providing clear guidance on how clients can cancel services if needed and the corresponding effects. Do you have sufficient internal oversight, MI and documented processes to evidence this?
3. Engage with the Consumer Duty Standards
Make sure your firm has embedded the Consumer Duty into its operations and that you can demonstrate compliance. Regular audits of client outcomes and service delivery will help to avoid potential pitfalls, as will having a culture in the business that champions the desired outcomes of Consumer Duty.
4. Prepare for the Advice-Guidance Boundary Review
Consider how your firm might expand its service offerings to include a broader spectrum of support and how the review might impact your current operating model. Even more importantly at this stage, make sure you are engaging with the FCA during this review so your views are heard.
5. Take Consolidation Seriously
Your mergers and acquisition activity must be more than a plan for driving up AUM. You need to be able to demonstrate you’ve completed sufficient due diligence including back book reviews and have a process for embedding the new clients into your existing business structure. Without such action, it is difficult to see how a firm will be able to meet the FCA’s expectations that client outcomes are at the centre of any activity in this area.
How We Can Help
At Adeptli, our background and expertise in financial advice and wealth management means we can help you navigate these changes with confidence. Our services include:
- Regulatory Compliance Reviews: We can assess your firm’s processes against the FCA’s requirements, particularly in areas like retirement income advice and ongoing advice services.
- Consumer Duty Audits: We provide tailored reviews to help you evidence compliance with the Consumer Duty standards.
- Mergers and Acquisitions Support: Whether you’re acquiring or being acquired, we assist with due diligence, back book reviews and integration planning.
Proactively addressing these challenges will help your firm not only stay compliant but also grow sustainably in an evolving market. If you need assistance in implementing these changes, feel free to reach out by dropping us an email or booking in an introductory meeting.
Next up: Why not read our blog McDonald’s AI Experience: A Cautionary Tale for Financial Advice.