The FCA has finally published its long-awaited paper on simplified advice, together with two associated papers on consumer research and the thematic review.
Firstly, there are lots of good intentions set out in the paper. For example, right at the beginning, the FCA states: “We believe that a well-functioning retail investment market needs different delivery mechanisms to be fully effective for a broad range of potential investors.
“There are benefits to well-designed, low-cost methods of meeting customers’ straightforward needs — the challenge is to ensure that such methods deliver good outcomes for customers in a way that is viable for firms.” Who could argue with that?
The FCA says it is aware that firms offering retail investments without personal recommendations want greater clarity on how they can support customers in making informed decisions, increasingly via technology-rich solutions.” All go od stuff, I hear you say.
The paper has also announced the launch of an innovation project to help firms. This will be of particular interest to IT firms new to financial services, but that are keen to explore and develop new ways of delivering products to consumers.
The FCA is even willing to provide help through its authorisation process. It has issued a separate paper on this project (www.fca.org.uk/your-fca/documents/project-innovate-call-for-input), which is well worth reading.
This is a very positive development from the FCA. It is, however, in stark contrast to the guidance in the main paper, where the FCA does little to help the market develop a simple proposition.
On a more positive note, the table on page 19 is a helpful reminder of the current regulatory landscape. The table includes a summary of the range of distribution models, sets out a range of sales options, whether the appropriateness test or suitability requirements apply, and whether there is access to the Financial Ombudsman Service and the Financial Services Compensation Scheme.
Alas the market’s concern about Fos remains untouched. While the FCA acknowledges that the market continually raises the issue of Fos, the paper simply states that Fos is supposed to take into account any limitations of the service in reaching a ‘fair’ decision.
This for me remains the biggest hurdle for simplified advice. We need clear rules that Fos will follow. Speaking as a non-executive director of a major IFA business, it would be a brave board that committed its organisation to the inconsistency of Fos decisions.
My concern is that one questionable decision by Fos could lead to claims-handling firms latching on to similar cases as potential class actions.
In one respect, the paper is also not particularly useful for anyone looking at launching an online proposition. Many of these systems will offer customers the option of accessing additional information, probably through a webchat or potentially even face-to-face.
However, the paper says: “When there is a degree of human interaction, particularly face-to-face, there is a potential for information provision or product guidance to be misinterpreted as a recommendation.”
This statement could have wider implications beyond simplified advice and could even include any organisation offering the new at retirement guidance guarantee.
So what does this all mean? As simplified advice still requires level 4 qualified advisers, and as it is so little different to focused or limited advice, I frankly cannot see any reason for offering this on a face-to-face basis.
This means a mass-market solution will only be found by using technology, but as any ‘simplified’ solution will be by its nature restricted, this will deter IFA firms from offering the service.
Add to this the costs of developing e-solutions and the ongoing concern about Fos, and it is safe to assume that simplified advice will not solve the advice gap any time soon.
Dr Peter Williams is an independent business consultant and chartered financial planner
