A consultation by the regulator into advice labels may see such ‘tagging’ being ditched in favour of a more qualitative approach looking at how services are described to consumers, the regulators head of policy has said.
Speaking to FTAdviser, David Geale said the new definition of independent advice and its counterpart definition, restricted, had “performed better” than any others with consumers in pre-RDR research, but that in practice many were failing to see the difference.
He said: “When we introduced those labels, we did an extensive amount of consumer research. We consulted on the changes and actually ‘independent’ and ‘restricted’ are about as simple as you can get in terms of labels; they performed better than anything else we tried.”
Mr Geale said that the regulator has now found that consumers who are taking restricted advice “generally think it’s independent anyway”.
He said: “There is clearly something for us to do now and this is something that hasn’t quite landed as we intended. We did a lot of research into that; we didn’t go into that blind.
“We were expecting it would be clear for consumers, but now we are looking at whether there are things we can do to take a different approach and actually look at how you explain the service, rather than tagging it as a label.”
Europe Economics’ final ‘phase 1’ report on the impacts of the RDR, published today (16 December), revealed that the FCA thinks consumer understanding of the two labels “appears limited”.
Confusion has reigned over the new definitions since they came into force as part of the RDR. In January, the regulator’s director of long term savings and investments Nick Poyntz-Wright conceded that the two models were “not completely working”.
Martin Wheatley, chief executive of the City watchdog, also admitted at the time that more work was needed on clarifying the definitions, but he said then that it would not be seeking to change the rules.
The regulator says it is now going to consult on the matter and “wants to hear stakeholders’ views for better ways to present information to consumers on the nature of advice services”.
Mr Geale added that a variety of ideas have been put to the regulator, particularly on “explaining the service so focusing more on what it is that firms do, rather than hanging it off a particular label”.
The review refers to “a proposal put forward by the Smaller Business Practitioner Panel to introduce a simple label that better sets the consumers’ expectations by explaining the scope of the firm’s advice” and that any work would also “take on board the implementation of Mifid II”.
It adds that the work will form part of the FCA’s wider work on the provision of information to consumers, due for publication in the first quarter next year.