Ex-FSA director flags fears on FAMR advice definition

Ex-FSA director flags fears on FAMR advice definition

David Severn, former head of retail investment policy for the FSA, has claimed the Financial Advice Market Review’s recommendation for a new definition of advice will introduce unwelcome uncertainty to the sector.

Mr Severn, who was also a former director of the Association of Independent Financial Advisers (now the Association of Professional Financial Advisers), said: “FAMR introduces some additional uncertainty to streamlined advice.

“It says firms giving such advice will ‘need to consider the types of product appropriate for customers’.

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“Just as ‘basic advice’ is reserved for stakeholder products, it looks like ‘streamlined advice’ may have to be reserved for a restricted set of products, but FAMR does not spell out the criteria by which firms are to judge whether a product is ‘appropriate’.”

In the March 2016 FAMR - Final Report, it said the Financial Advice Working Group should publish a shortlist of potential new terms to describe ‘guidance’ and ‘advice’, subject to market research and consumer testing.

FAMR - Box 6: Suggested Terms

Financial guidance

Guidance without a personal recommendation

Assisted self-help

General advice

Financial help

Tailored information

Financial advice

Advice with a personal recommendation

Specialist advice

Regulated financial advice

Professional advice

Personal advice

Financial planning

Source: FAMR

However, according to Mr Severn, FAMR’s discussion over the various terms suggested for a ‘new’ definition of advice is an old argument. He added: “The debate about ‘simple advice’ has been going on for years.”

In his 111-page 2010 report, Safer Products - Research for the Financial Services Consumer Panel, Mr Severn had written: “It would not even be necessary for the regulator to create any new simplified advice process as it already has one in basic advice.

“Although originally designed for stakeholder products, basic advice was capable of being extended to non-stakeholder ‘safer’ products and the FSA said it would examine this possibility.

“It seems to me the FSA has failed to honour this commitment, but it could now revisit the question.”

Adrian Boulding, retirement strategy director for Dunstan Thomas agreed regulatory intervention over advice definitions and terminology has been an age-old debate, which has not achieved much.

He says: “Four years ago the FSA unveiled FG12/10, its Finalised Guidance on Simplified Advice.

“The guidance failed to do the job and ‘Simplified Advice’ was never defined adequately. During this pre-Retail Distribution Review period, there was feverish discussion in the industry about how to define ‘basic’, ‘streamlined’, ‘simplified’, ‘restricted’ or ‘focused’ advice.

“The only category that made it through the regulator’s wringer was ‘restricted’ advice.”

Mr Boulding expressed scepticism about having too many terms and not enough clarity of definition, adding: “Does FAMR finally offer an adequate definition of simplified and/or streamlined advice which banks can use as the basis to start rebuilding their teams?”