Where should FCA draw the advice line?

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.

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’.

The ‘earthquake’ spreads

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.

Steven Woofe said the party plans to promote the UK’s exit from Europe in a bid to “review the financial services regulation imposed on us and see if it is practically useful to us”.

As in many other areas of the electorate, advisers are a little cheesed off with the status quo and the way they are not listened to. Ukip’s words are music to their ears.

There are, however, issues. First I highly doubt Ukip will win the general election, and even if the other parties take heed of some issues related to Europe and beyond, financial services regulation is not top of the pile for reform.

I find it amazing that to this day the FCA has carte blanche. I thought Parliament would use the FSA/FCA changeover to make the regulator more accountable, but it has not. The EU is not the problem here - national governments have enshrined the FCA as it is.

Furthermore, which pieces of financial services regulation would we not want? I realise the RDR had its issues but, discounting the fact that adviser numbers have fallen, surely the RDR has at least largely benefited the industry?

Answers on a postcard please.

Fuss over nothing

It seems the MMR has replaced the RDR in terms of the most talked about piece of regulation.

In the latest FTAdviser video interview, Phil Rickards, the head of Lloyds’ buy-to-let lending arm BM Solutions, has dismissed ‘gaming’, claiming that changes to affordability criteria by lenders was simply ‘business as usual’.

Of course he would play down ‘gaming’ but it seems to be a fact that it is in actually growing since the MMR’s implementation.

FTAdviser previously revealed that it has seen documentary evidence whereby brokers have been removed from a panel - Lloyds’ actually - for submitting buy-to-let applications for residential buyers. Experts, including lenders, have told us the practice is on the rise.

One of the most commented on stories this week was on lenders using the MMR to tie customers into longer lending periods, for example, instead of 25 years they may have to sign up for 30 years.

According to the story, an unnamed broker said that Coventry Building Society rejected a 13-year deal for his client, but offered a 24-year deal, which would earn the mutual an extra £34,566 in interest.

In some respects, you could say the lender is being more prudent in lengthening the mortgage term, however it seems like another of those ‘unintended consequences’ that clients could be penalised for prudence for paying their mortgage off early.