Before I start, I have to say this was one of the most confusing FCA papers I have ever read.
It seeks to set boundaries between execution-only and advice, ‘generic’ regulated advice and full RDR-defined advice, and includes five different definitions of what ‘advice’ even is.
I have sympathy for the regulator, as they are caught between conflicting legislation set out in the European Markets in Financial Instruments Directive and the Regulation Activities Order (related to the Financial Services and Markets Act), and demands from the sector for simplicity.
In an attempt to untangle this complex web, here are nine key takeaways from the paper.
1) Confusion reigns over limited, focused and simplified advice.
One of the key issues in the paper is the attempt to codify and simplify, for want of a better word, those cheaper, simpler processes some would like to see that fall short of full advice.
It’s not as simple as all that, though. The regulator kindly gives us a table explaining the terminology and defining in three different ways these services.
So we’ve got ‘simplified’ advice, which is “limited to one of more of a customer’s needs”; ‘focused’ advice, where advice only relates to a specific need or designated investment; and ‘limited’, a “term used to describe” focused advice. Confused?
No matter. They’re all fairly similar and simply relate to different contexts. Crucially, all three also involve a ‘personal recommendation’ and so fall under RDR-rules.
2) A personal recommendation.
This is the key issue cited in the paper as defining when something ceases to be ‘generic’ regulated advice - general information which does not have to comply with the full conduct rules - and full advice, as defined by Mifid and RDR.
It comprises three main elements: there must be a ‘recommendation’; the recommendation must be presented as suitable; and the recommendation must relate to taking certain steps in respect of an investment.
3) Generic advice.
If you fall short of the above - and that’s harder than it sounds - you are probably giving generic advice as defined in the RAO relating to Fsma. Generic advice covers advice or information that does not relate to a specific investment.
The FCA was asked to give more information by respondents to help them recognise when they’d tipped into advice, but it says it is all too context-specific. It does give some examples, which included that a generic information website is probably not advice, but one with filtering probably is.
4) Generic decision trees must not ask personal questions.
What about when something moves from being generic advice to offering a personal recommendation? Useful here is the advice related to ‘decision trees’, which to fall under generic advice must ask no personal information such as marital status or long-term goals.
To clear this all up, the regulator adds: “the difference between ‘information’ and ‘investment advice’ is the element of opinion or judgement on the part of the adviser, either in person or, for example, online.”
5) Suitability reports can be ‘flexible’...
I reckon this means a lot of what many hoped would be ‘non-advised’ is actually proper advice. But at least you can have some relief from the full suitability and fact find requirements if it’s ‘simplified’ - although in truth not a lot.
Firms need to collect the relevant information to provide a personal recommendation, although it won’t need to be as detailed as it is for the full advice process. The FCA explains that you can limit the scope of a service, but the depth of the suitability obligation cannot be limited.
You won’t need to do a full fact find, but you will need, for example, to “understand the level of any regular contribution products owned by the customer”.
6) ... but there are few other concessions.
Calls for the regulator to relax qualifications requirements, for example, were refused, meaning simplified isn’t too much of a let off and it won’t be able to be used as an easier access point to the industry which some had hoped it might.
The paper explains: “We do not believe that relaxing the requirements for individuals who give simplified advice is in the best interests of the customer.”
7) Only restricted can offer ‘simplified’ advice.
No change there then from the original consultation. In the paper, the FCA said that ‘simplified’ will fall under ‘restricted’, as the products available are likely to be limited to one or two product providers and types of products.
If a firm provides restricted advice in addition to ‘independent’ advice, it should not promote itself as a provider of independent advice for its business as a whole nor would it be appropriate for the firm to include the word ‘independent’ in its name.
8) Advisers have concerns.
While firms do want to develop straightforward processes to deliver quick and cheap services to consumers, there are concerns about what deems to be a personal recommendation.
The FCA said this has caused “some reluctance” and it has discussed with its stakeholders the options for delivering this. While the paper does list examples of what is and what is not a personal recommendation, it seems to raise more questions.
9) FCA can’t help with the Fos.
Unsurprisingly, firms told the FCA that the Financial Ombudsman Service’s response to complaints is a “barrier to developing new systems”. The Fos said it will decide each complaint “on the basis of what it believes is fair and reasonable”.
The FCA also said that it “should not be seen as surprising” that the Fos may arrive at different outcomes on separate cases. “It is not a question of inconsistency,” the paper said.
donia.o’loughlin@ft.com
