RegulationAug 28 2014

No end to advice gap

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The FCA has finally published its long-awaited paper on simplified advice, together with two associated papers on consumer research and the ­thematic review.

Firstly, there are lots of good intentions set out in the paper. For example, right at the beginning, the FCA states: “We believe that a well-functioning retail investment market needs different delivery mechanisms to be fully effective for a broad range of potential investors.

“There are benefits to well-designed, low-cost methods of meeting customers’ straight­forward needs — the challenge is to ensure that such methods deliver good outcomes for customers in a way that is viable for firms.” Who could argue with that?

The FCA says it is aware that firms offering retail investments without personal recommendations want greater clarity on how they can support customers in making informed decisions, increasingly via technology-rich solutions.” All go od stuff, I hear you say.

The paper has also an­­nounced the launch of an innovation project to help firms. This will be of particular interest to IT firms new to financial services, but that are keen to explore and develop new ways of delivering products to consumers.

The FCA is even willing to provide help through its authorisation process. It has issued a separate paper on this project (, which is well worth reading.

This is a very positive development from the FCA. It is, however, in stark contrast to the guidance in the main paper, where the FCA does little to help the market develop a simple proposition.

On a more positive note, the table on page 19 is a helpful reminder of the current regulatory landscape. The table includes a summary of the range of distribution models, sets out a range of sales options, whether the appropriateness test or suitability requirements apply, and whether there is access to the Financial Ombudsman Service and the Financial Services Compensation Scheme.

Alas the market’s concern about Fos remains untouched. While the FCA acknowledges that the market continually raises the issue of Fos, the paper simply states that Fos is supposed to take into account any limitations of the service in reaching a ‘fair’ decision.

This for me remains the biggest hurdle for simplified advice. We need clear rules that Fos will follow. Speaking as a non-executive director of a major IFA business, it would be a brave board that committed its organisation to the inconsistency of Fos decisions.

My concern is that one questionable decision by Fos could lead to claims-handling firms latching on to similar cases as potential class actions.