Advice standards relating to qualifications and suitability when delivering so-called ‘simplified’ services will not be loosened, despite claims from the industry this could help close a perceived advice gap and reduce barriers to entry.
In final guidance defining the threshold for advice and specifically simplified or ‘focused’ advice (FG 15/01), the Financial Conduct Authority states processes involving a limited selection of relevant products would still fall under the same requirements as full advice.
The paper explains: “We do not believe that relaxing the requirements for individuals who give simplified advice is in the best interests of the customer.”
Speaking to FTAdviser last year, Malcolm Streatfield, chief executive of national advisory business Lighthouse Group, echoed those industry figures calling for simplified advice to be an opener for full advice.
He said such a system that would allow certain processes such as online tools to be carried out under supervision by new advisers as a stepping stone to being level four qualified, thus giving them an easier route into the industry which is economically viable for firms.
In order to ensure that simplified advice is able to be offered more widely to mainstream consumers, others had said that suitability requirements should be relaxed to enable limited services to be deployed in a wider range of situations.
On suitability, the FCA stated that simplified processes would clearly be more “flexible” than full advice, but that any assessment requested relating to existing assets, or any belief that this may be necessary, would mean full advice must be offered instead.
The regulator also reiterated that only ‘restricted’ advisers can offer a simplified process. If a firm that deems itself to be both restricted and independent wants to offer ‘simplified’ advice then it can no longer hold itself out as ‘independent’.
Clarifying the distinction between ’generic advice’ and more formal advice, the paper emphasised that exceptions to rules which would allow a firm to inform or guide a customer, would hinge on whether a ‘personal recommendation’ was given.
Both the FCA’s own RDR rules and the European Commission’s Markets in Financial Instruments Directive define advice as being of a ‘personal nature’, with a tailored recommendation relating to a particular product or list of products.
This is in contrast to UK legislation under the Regulated Activities Order 2001, which defines generic advice much more broadly for the purposes of the Financial Services and Markets Act 2000. Such ‘regulated advice’ would still need to be compliant with certain Principles of Business rules.
A personal recommendation would normally be deemed to have been given, the paper shows through a number of examples, if personal information was sought in the process. This would be the case even if an automated system such as an online decision tree was used.
In one example, the FCA notes that if a process involves taking down personal information, such as marital status and plans for the future, the outcome would fall under a ‘personal recommendation’ and be subject to full advice suitability rules.
Elsewhere in the paper, the FCA confirms it will consult on proposals to replace the Association of British Insurers’ code on annuities with its own rules in due course.
Last month, the FCA said that the potential benefits of replacing the ABI code with its own regulation would be to “ensure that those aspects of the code incorporated within its rules are fit for purpose in the new landscape”.
It would also, the regulator states, mean that consumers receive information which “informs them of their right to shop around and exercise their open market option”.
donia.o’loughlin@ft.com, ashley.wassall@ft.com
