The UK’s Financial Conduct Authority (FCA) recently announced that it was establishing the Financial Advice Market Review (FAMR) to examine how ditching embedded comp has limited access to advice for those most in need of it.
This "experiment (of eliminating embedded comp.) has inevitably resulted in rising advice costs, reduced adviser numbers and a significant reduction in the delivery of financial advice,” Richard Bishop, a practicing financial advisor in the UK and Coventry University College lecturer, writes in a scathing op-ed in the Financial Times. “The FCA has proven to be a very expensive way of delivering regulation in the UK; it may be the case that the implementation of the FAMR requires a new regulator, not a new regulatory approach.”
That desire to hold the regulator accountable for unintended consequences of dropping embedded commissions is growing following a FCA post-implementation review of its commission reforms in December 2014. It found that the cost of advice has increased but the FCA has yet to comment on the total impact including the value delivered as a result of the changes.
Regardless, opponents of the reforms believe there’s an “advice gap” that’s come to pass as a result of the various changes implemented 32 months ago including the elimination of embedded commissions.
However, Toronto economist and former UK adviser Andrew Teasdale sees the UK reforms as having unfolded exactly as it should be.
“Access to ‘advice’ has never really been the major problem, in my opinion. Access to cost effective simple solutions has been, especially for the many smaller investors,” Teasdale wrote in an email to WP. “We have the technology and ability to deliver the RDR, this is just a natural progression, and history is littered with the revolts of those displaced by progress.”
UK pundits have said a ban on embedded commissions for advisers has hurt clients.