Opinion  

Where should FCA draw the advice line?

Donia O’Loughlin

Arguably the most significant story this week was the news that the FCA is set to launch a consultation paper next month on automated advice and guidance services, in an effort to address the advice gap.

We knew the paper was due - earlier this month Rory Percival told a conference in London the regulator would imminently be publishing ‘thematic work’ into the subject - and the results will make for a fascinating and important insight into how the FCA defines advice in the fast-changing internet age.

Regular FTAdviser readers will remember when at the beginning of the year, FCA head Martin Wheatley said the regulator was struggling to quantify the advice gap, during a Treasury Committee session during which he stated his desire to see online models evolving to meet needs.

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Mr Wheatley reiterated this yesterday (29 May) - but he also highlighted the main area of contention, being where the dividing line falls between non-advised online information and guidance and advice.

He said: “We get feedback from advisers all the time saying that automated and online services, such as web-based advice, could not be used because of the fear of straying from guidance into advice... the consultation paper will aim to address that.”

That fear is prevalent with one adviser who launched an online-web service in January, who has admitted that although the service is supposed to be fully automated it is not because he is fearful of the FCA’s wrath if he falls outside some perceived advice line.

James Williams, who launched Monibox, believes there is adviser appetite for launching a lower-value service, but he echoed that the problem is “no one wants to do it” until there is regulatory clarification.

Craig Palfrey, who also launched a web-based service around the same time as Mr Williams, believes it is quite cut and dry and simply revolves around product recommendation.

He said: “Advice is not regulated until you recommend a product. We can talk about the future plans and different products available and we are not stepping over any lines to give the FCA concern.”

This view is shared by many across the industry that has commented on the new ‘guidance’ service that will be offered to pensioners, which providers and others have said must stop short of any recommendation if it is to remain on the right side of the advice line.

It will be interesting to see the FCA’s view. It will also be interesting to see, for example, how it views decision trees and the like if it agrees with the above aversion to decision making.

There are alternatives, of course. Full advice may seem incompatible with online services, but some, including Moody’s Analytics head of retail, believe there will be direct tools that can provide a more comprehensive service.

This could be the beginning of a whole new world of ‘advice’.

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By far the story that attracted the most attention this week is Financial Adviser’s Ukip story, whereby the nascent political force’s shadow chancellor said it will slash financial services regulation.