Commentators may have spotted a tendency for much vaunted reform and renegotiations by Governments to result in very little of substance.
It is not the place here to discuss the EU and the UK's current referendum on continued membership. Indeed, the Financial Advice Markets Review ('FAMR') appears to proceed on the assumption that there is no such referendum, given its comments on MiFID and MiFID II.
Published this morning, the final report of FAMR certainly falls into the category of 'very thin gruel'. On a first reading, its impact appears negligible and its recommendations empty.
Definition of Advice
Citywire's New Model Adviser for example highlights the suggestion the Regulated Activities Order ('RAO') be amended to align the definition of 'advice on investments' with that of 'personal recommendation'. According to NMA, "many activities that are currently ‘captured’ by the definition of advice, including generic advice, investment research and general recommendations by regulated firms, would no longer require investment permissions."
Unfortunately three minutes thought would suffice to show the paucity of this supposed reform. Firstly, 'generic advice' is not currently caught by the definition of 'advising on investments' as it stands. To be 'advice on investments', advice "given to a person in his capacity as an investor" must be advice "on the merits of…buying, selling [etc]…a particular investment which is a security or relevant investment" [Art.53, RAO]. This focus on a "particular investment" already excludes "generic advice".
Secondly, to be effective in delivering a clear perimeter to firms, this redefinition of the regulated activity requires a clear and indeed narrow definition of 'personal recommendation'. This concept however is far from clear or indeed narrow, as FCA's talk of 'implicit personal recommendations' in its guidance on simplified advice services made clear [ FG 15/1].
Thirdly and most critically, this does little in practice to relieve any regulatory burden. As it is written, COBS applies the KYC and suitability obligations to 'personal recommendations' only, not to anything else that might be considered 'advice on investments'. The FOS of course then has its discretion to ignore COBS and apply whatever standard it feels like against an authorised firm.
There is of course a theoretical 'gain' here in that generic information sites that do not directly link to investors being able to invest will, on this basis, not require authorisation. That of course would remove them from the randomness of the FOS jurisdiction. In practice however, these sites are either operated by unregulated firms currently (and some, I should stress are very good) or are operated by authorised firms who remain subject in practical terms to what FOS decides years hence. There is in short simply no de-regulation here.
Paying for Advice From Your Pension Pot
Other recommendations in the Paper will leave some practising advisers feeling incredulous. Take for example the recommendation that: "HMT should explore options to allow consumers to access a small part of their pension pot before normal minimum pension age, to redeem against the cost of pre-retirement advice." [Recommendation 14]
This is already allowed. It is called a 'scheme member administration payment' [per s.171, Finance Act(2004)]: "Such pension advice might be in connection with the suitability of fund choice, asset allocation, pension provider, pension taxation or checking against statutory limits. Also, the advice could cover how to maximise income from the pension fund at retirement or how to maximise the return on an existing pre-retirement pension fund or more general advice on the payment outcomes/risks of respectively choosing the type of pension to be taken; scheme pension, lifetime annuity or drawdown pension" [PTM 143200].
Yet for padding purposes, this seems to be something FAMR/FCA wants to 'look busy' re-allowing.
Fundamental Faults in Regulatory Regime Remain
In the areas where FAMR could have made a meaningful difference, it makes little difference at all.
The suggestion that "…FCA should consider whether to undertake a review of the availability of PII cover for smaller advice firms" [Recommendation 21] is striking in its lack of specificity. A recommendation that it should consider undertaking a review is not even a recommendation that it undertakes such a review. More to the point, it simply fails to acknowledge that hardness develops in the PII market precisely because of the regulatory regime's tendency to manufacture claims that might not otherwise exist in law.
This brings us to the real nub of the problem. Too many firms will have told FAMR that the problem of uncertainty sits with the role of the Financial Ombudsman Service ('FOS'). FAMR provides no more than window dressing to address this.
We have for example a recommendation that FOS "should consider" - that word 'consider' again, rather than 'it should' - "undertaking regular 'Best Practice' roundtables with the industry and trade bodies where both sides can discuss relevant issues such as the evidence used when considering historic sales and suitability requirements." [Recommendation 21]. The truth is that FOS already talks with the industry, whether it is with the trade bodies or professional bodies like the Chartered Insurance Institute ('CII').
For a small firm concerned at how its one or few advice complaints have been judged against 'convenient' criteria, its reputation shattered and its PII premiums hiked through the roof, such talking lacks what they really need: a remedy.
Other Ombudsman services dealing with the general public provide this. The Pensions Ombudsman does this by determining cases on the basis of the legal rights of the parties, informed by the minutiae of regulation. When it choses to ignore the legal rights to make 'convenient' decisions, one can go to a real Court and a real Judge to get matters corrected. This works for consumers as much as firms, as the recent case of Hughes v Royal London Assurance  EWHC 319 (Ch) illustrates.
A diligent firm in the occupational pensions arena can plan its strategy to minimise liabilities and maximise compliance by seeking to learn what the law says. A diligent firm providing investment advice to consumers has no such luxury, and with FAMR will remain subject to an Ombudsman that shockingly feels no shame in comparing itself to the lawless Viking hordes.
For consumers - such as those clients of an adviser firm I was recently asked to assist gaining redress from an unregulated scheme operator - their remedy will continue post-FAMR to rest not with establishing a cause for action, but hoping the Vikings will feel like chasing after the wrongdoer rather than using their discretion to let them off.
There are thankfully suggestions in FAMR for FSCS reform [e.g. Recommendation 20]. Closer inspection however tells us that "FCA should consider" - "consider", again - reform "to better distribute the FSCS levy among members of the intermediation funding classes" [p.53]. This may help avoid IFAs picking up the cost of penny-share stockbrokers, but would do nothing to prevent them picking up the cost of failing providers - whether that is through structured product providers such as Keydata being classed as intermediaries, or the tendency to blame IFAs for entrusting large authorised provider firms with clients' investments.
In short, there seems little of substance in any supposed reforms here. It is all very thin gruel indeed.