Financial Advice – What a risky business!

Top advice
4m read
Oct 2023
Andy Kirby
Founder and CEO

It was great to be involved in the panel discussion at the recent FT Adviser Financial Advice Forum, and it’s a privilege for Money Alive to be a part of the new innovative BareRock PII proposition that was launched at the event.

Reflecting on this, and the FSCS session I joined, there are a few insights I'd like to share through the lens of regulatory and commercial risk.

Lila Pleban, Chief Communications Officer at FSCS provided some interesting insights – some key points to reflect on:

  • FSCS claims often emerge 5 to 20 years after advice is given.
  • Consumer financial literacy is often lower than assumed; confidence doesn't equate to understanding.
  • Consumers struggle with understanding complex financial products. 

From the lively panel discussion on PII, here are my key risk-related takeaways: 

1) Equity release claims/advice may become a target for Claims Management Companies, and the need for advisers to actively engage beneficiaries in the advice process was highlighted (bearing in mind that those beneficiaries of the estate could be the future complainants). We also know that the recent FCA’s review in this area was quite damning so many need to lift their game.

2) There's a concern that retirement and pensions advice could also become a source of claims for PI insurers, particularly following the Financial Conduct Authority's thematic review in this area. This scrutiny is coming – be prepared!

3) Consumer Duty is raising the bar and should be making all firms look at their own practices – ask yourself - how do you evidence good consumer outcomes?

4) Firms that can demonstrate robust processes, a culture of responsible conduct, and a track record of consistently delivering positive client outcomes will have a better risk managed business. They should be rewarded with fairer and more stable PII premiums which is what BareRock’s new PII proposition aims to achieve.

Business owners, Directors, and Senior Managers of advice firms should all have Consumer Duty, the FCA’s Retirement Income Thematic Review, AR Regime, and FCA’s ER Focus on their regulatory and commercial risk radar! Running an advice business is risky – but risk can be mitigated, and these sessions provided valuable insights into how this can be done.

My key takeaways from these sessions, and the others I dipped in and out of throughout the day, are as follows:

  1. Robust Systems and Controls: Implement and enforce robust systems, controls, and processes for advisers and ensure consistency. This will also give you comfort that you know how each adviser is operating.
  2. Management Information (MI): Utilise proper MI to demonstrate control and oversight. It's crucial for evidencing adherence to processes and it also acts as an early warning when things are not being followed. It's also crucial to support your decision making process. Remember the FCA has said that it is going to be data led - and looking at the FCA questionnaire on Retirement Advice they weren't joking. You need relevant data/MI across your entire business.
  3. Record-Keeping: Maintain thorough records as they may be required long into the future. And ask – would they stand up to independent scrutiny?
  4. Consumer Understanding: Communicate complex ideas in an understandable manner, aligning with the Consumer Duty's goal. We know from Money Alive’s own work in this area that consumers will also appreciate this so it's a win-win. And, have evidence of what you have done to aid understanding.
  5. Proactive Approach: Get on the front foot and take a proactive stance; don't wait for issues to arise. Be prepared for regulatory scrutiny.
  6. Learn from Past Interventions: Apply lessons learned from previous FCA interventions. For example, take the learnings from DB and apply them to the FCA’s Retirement Income focus.
  7. Budget for Risk Management: Allocate budgets for technology and services that aid in effective risk and regulation management.
  8. Decision-Making: Sometimes there may be a different agenda between an adviser who doesn’t carry the commercial or regulatory risk and those who do. Recognise this when designing your system and controls – they need to protect the whole business. 

In conclusion, remember Control, Consistency, and Oversight. Maintain proper MI and Evidence and this will benefit your business in many ways, both now and in the future. Use third party services where you feel you haven’t got the know-how/expertise/time to do it yourself. And then… the challenging landscape of giving financial advice becomes less risky!

Want to find out more?

If you’d like to hear how Money Alive can help with the above then please book a meeting with one of the team, it's free!

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