Are they really concrete enough to get excited about? Can we trust the FCA not to change its mind again retrospectively? Are these proposals not aimed at banks and not the financial adviser community? One of the positives arising from the report is the narrower definition of regulated advice, but, interestingly, the beneficiary does not seem to be the traditional advisory community. Instead, it should lead to a more supportive regime for robo-advisers and non-advised distribution models, and a range of firms who are currently almost accidentally caught by the advising activity.
In the wake of the ‘advice gap’, FAMR aimed to improve access to and take up of advice. The paper states it wants to create “a vibrant financial advice market that works in the interest of all consumers”. However, the question everyone is asking is what role, if any, will advisers play in closing that advice gap?
HM Treasury is to consult on changing the definition of advice so that advice will only be regulated if it includes consideration of the recipient’s circumstances – in other words, if it amounts to a ‘personal recommendation’.
So, why all the fuss about a change in the definition of advice? Well, to understand that you need to appreciate the difference between the UK and European (MiFID) regimes. In the UK, individuals perform regulated advisory activities when they offer an opinion on the merits of a specific product or service with someone who may decide to purchase that product or service. By contrast, in Europe, advisory activities occur only when the advice takes account of the circumstances of the client; that is, when it is a ‘personal recommendation’.
A change to the definition sounds like a technicality, but in practice it should provide firms with certainty about the type of guidance and functionality they can provide to help consumers without triggering onerous suitability requirements. This wide-ranging UK definition has discouraged firms from providing such services, particularly to retail clients.
A change to the definition should provide firms with certainty about the type of guidance and functionality they can provide to help consumersCurrently, firms are concerned that research on a specific product can amount to advice, that providing risk ratings of products can amount to advice, and that tools that guide investors through a decision-making process can amount to advice. The changes will significantly free-up the providers of such services, some not requiring regulation at all, others released from some of the more tricky aspects of being regulated. It is just a shame that it will make little difference to traditional advisers
A key benefit to the narrower definition of advice is that many regulatory requirements would fall away. One of the biggest impacts is that, when providing guidance, research and ratings to retail clients, individuals may no longer need to be registered as a CF30 and the qualifications connected to advising activities should no longer be required. Between this, and no need to assess suitability, new models of helping customers to make their own investment decisions will become increasingly appealing when compared to more traditional advice models.
Overall, the changes should remove at least some of the disincentives for firms to invest in accessible, technology-based distribution models for retail investment products, and will put the UK on a level playing field with Europe. The benefactors of this change will include robo-advisers and banks offering non-advised investment platforms, plus those wanting to provide research to the retail market and crowdfunding platforms that provide risk ratings to the shares and bonds they list.
It may seem like there is nothing in all this for the traditional financial adviser business, but more forward-looking firms should quickly spot that there is nothing to stop them taking advantage of the FCA’s forthcoming new guidance on streamlined advice by developing their own simplified models that are effective in a face-to-face setting.
Gillian Roche-Saunders is head of venture finance of Bovill
