Platforms face many changes in 2014

In June, the FCA is due to release its Thematic Review into non-advised sales and simplified advice. Essentially this guidance is expected to govern how financial advice can be delivered on-line.

The extent to which the regulator relaxes the current rules surrounding a personal recommendation could have a wide reaching impact on how advice is provided in the future, and the business models of the advisory firms that provide it.

The pricing transparency for individual investors introduced by the RDR, was strengthened in April 2013 with the issuance of Policy Statement 13/1 entitled, Payments to platform service providers and cash rebates from providers to consumers.

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This policy statement had major implications not just for the platforms but also advisers as it called time on the payment of rebates and trail income. For the execution-only platforms it was a bit of a game changer and prompted the regulator to take a closer look at how investors are guided by tools on these platforms in their investment decisions.

So what exactly is guidance?

Guidance is an industry term, and it is not recognised by the regulator. Advice is either given or it is not. Advice can, however, be simplified and we saw a guidance paper issued on this subject in March 2012. Simplified advice is defined by the regulator as streamlined advice processes, aimed to address straightforward needs, the outcome of which may be a specific product recommendation.

But advice, with the protection and reassurance it offers, is expensive to deliver. Investors are flocking to the perceived cheaper option of the execution-only platforms. Here the investors find tools and widgets to help them make investment decisions. So execution-only is not strictly execution-only and the hint of advice, in the form of guidance, has crept in.

We know the regulator is keen to address the sizeable advice gap that exists in the market, especially considering the impact that the RDR has had on sales of savings products. With the likely trend of continued pricing sensitivity from investors, the execution-only platforms have a major role to play but the playing field needs to be level.

Advice in whatever guise, needs to be evenly and fairly regulated, to everyone’s benefit. The cost of investing and basic advice will face further downward pressure as transparency in the market continues and direct to consumer (D2C) offerings become more competitive. The cost of advice will be even more explicit in the superclean world in which products and platform charges are priced at an equivalent level across the market, whether delivered with advice or not.

Advisers need to be prepared for the future where more people do more things online. Now is the time for business models to be adapted and positioned for the future. While there will always be demand for face-to-face advice by high net worth individuals, and complex cases, if the statistics provided by Cass Business School prove correct, there are not enough of them to go round and their numbers will dwindle.