FCA's advice boundary review a 'step in the right direction'

Last year the FCA set out three proposals for reforming the advice boundary, including clarifying the advice/guidance boundary, a simplified advice option and a targeted support regime.

The feedback period for the review is set to close today (February 28) with firms across the sector submitting their responses to the regulator on its proposals. 

Toby Band, managing director at First Sentinel Wealth said he liked what the FCA were doing with the review but believed it missed the mark with its targeted support proposal.

He said this was because it leaves the customer to make their own investment decisions without the security of it being regulated advice.

He added: “It will be challenging to implement this guidance, we will undoubtedly be asked by customers to comment on whether it is a good decision or not, which we will have to sit on the fence about to avoid risking the guidance turning into advice.”

The Society of Pension Professionals (SPP) believed the targeted support regime could create an opportunity for many firms to be able to better support consumers. 

However, Jasmine Smiley, chair of the SPP financial services regulation committee, felt it would only be successful if “the new regime is properly considered and very carefully implemented.”

Anne Fairweather, head of government affairs and public policy at Hargreaves Lansdown, thought the proposals for targeted support would be “transformative” to the way people engage with financial services. 

She added: “We know that there is more we could do to drive good outcomes for clients if we were able to personalise the guidance they receive. 

“Whether it’s helping a client to understand retirement options or which investment path to take, allowing for greater relevancy and personalisation will help us manage our finances more efficiently.” 

Fairweather suggested the targeted support regime could take the shape of improvements in communications while in other areas it may be embedded into journey design to improve decision making. 

She also added it could result in the development of financial coaching services. 

“The key for the new regime is to leave space for innovation. The approach should focus on creating a regulatory framework in which firms can confidently iterate ideas to drive innovative solutions to client problems, whilst measuring outcomes.

“Consumer understanding will be extremely important but we are urging the FCA to steer away from prescriptive disclosures as the use cases for targeted support are likely to be varied.”

Simplified advice 

Band thought the simplified advice option was a better proposal than the targeted support regime, but felt the limit would need to be increased to make it commercially viable for most advice firms. 

Back in December, the FCA said the complicated nature of decumulation decisions around drawdown and annuities, meant it would be excluded from the simplified advice regime.

The regulator also set a £85,000 limit on simplified advice, which makes it harder to cover decumulation advice. 

“In my view, once a customer has taken that first step to receive advice, they find it much easier to interact with their finances and make decisions in the future.

“So if there is a way to get more people from point A (never receiving advice) to point B (taking advice in any form) that is a significant step forward for our under-advised country.” 

The SPP said while they support the principle of simplified advice, greater clarity was needed from the FCA on the scope/nature of products that may be advised under the proposal.

Smiley added: “More information is needed to ensure simplified advice offers consumers value for money.”

Jen Norris, director of reward and benefits at Isio, said the FCA should actively encourage effective, tailored financial coaching to be offered by both employers and providers. 

She added: “Financial advice is complex, but the route to financial advice is also varied and potentially difficult to navigate. We propose advisory firms should be expected to provide both guidance and advice and be able to assess and justify the level of support needed, while managing the conflict of interest that exists within the advice versus guidance cost and profitability model.” 

Advice/Guidance boundary 

Mark Campbell, head of wealth proposition development at Isio, highlighted that the industry required clarity around the boundaries of advice and guidance as well as “a consistent, cost effective system of oversight across both that is reflective of the risk to individuals”.

“This will reduce the cost burden to advisory firms and ultimately individuals, create confidence in the industry and ensure it flourished by appropriately addressing the needs of those it serves.”

Campbell added the ultimate goal should be for each individual to be able to get the help they need at a “fair price”.

Smiley also felt further clarification of the boundary would be helpful to some including pension trustees and smaller firms.

However, she felt it was unlikely to provide any additional benefit for “larger, more established firms.” 

Looking at the review as a whole, Smiley said: “In short, it is certainly a step in the right direction.” 

alina.khan@ft.com