Your IndustryNov 12 2015

Why ‘simplified advice’ is unappealing

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Why ‘simplified advice’ is unappealing

The Financial Conduct Authority should “clarify boundaries in a more meaningful and intelligible manner than they have done so far”, according to Intelligent Pensions’ managing director.

Earlier this year, the regulator published guidance aimed at defining advice boundaries, but the report was criticised for being poorly written.

Speaking to FTAdviser, Steve Patterson said: “Advisers need certainty in the context of how they can give limited advice which is – of course – different from restricted advice. It is not sufficiently clear what is required for safe advisers in terms of providing simplified or focussed advice.

“They can only do this on a cost effective basis if they understand what the regulatory requirements are for providing focussed advice. In other words they are only willing to do this if it is without a risk that can’t be mitigated.”

Danny Cox, head of communications and a chartered financial planner at Hargreaves Lansdown, said that advisers regularly express concerns that advice given today is judged in the future by the Financial Ombudsman Service using different standards.

“However, this applied to all forms of advice not just simplified. Quite rightly advisers should accept liabilities for the advice they give whether on a simplified advice basis or otherwise.”

Simplified advice services are often cited as a potential solution to the rapidly expanding advice gap. According to Mr Cox, to offer good quality low cost financial advice to the mass market requires scale and efficiency.

“This fits with limiting the scope of advice to a simple or focused basis,” he stated. “At the same time, the direct to consumer services are helping to serve investors in this space on a non-advised basis.”

For Mr Patterson, more simplified advice services would mean that employers would be more willing to offer advice services as part of their employee benefits package.

Under current legislation, employers are able to facilitate pension advice for their employees from regulated financial advisers without being taxed, as long as the total cost comes to less than £150.

While the majority of full advice services cost more than this £150 tax-free limit, many simplified alternatives would be affordable and accessible under this legislation.

Mr Patterson argued that the regulator needs to co-operate, so that advisers know what they can do and cannot do. “This would also help employers and trustees, because of their concern about where the boundary lies between guidance and advice.

“If they provide support to employees that could be construed as advice, they could end up being liable if that turned out not to be the best thing for that employee.

He added that if the FCA was clearer, advisers would be much more confident, helping to solve many problems surrounding pension freedom and choice. “Unless the government and regulators sort this out then a lot of people are going to lose out.”

lucinda.borrell@ft.com