FCA moves to launch simplified advice regime to boost access

In a consultation paper, published today (November 30), the FCA said it would create a separate, simplified financial advice regime to improve people’s access to financial advice.

As part of the regime, the FCA said it will create a new handbook definition of core investment advice. 

It proposes the overall definition comprises: advice may only be given on investments into a new stocks and shares Isa, advice may only relate to investments up to the value of the annual Isa subscription limit set by the Treasury; and advice may only be given on a sub‑set of investment products held within a S&S Isa. 

The FCA said it will limit the regime to advice relating to investments held within a S&S Isa wrapper in order to keep the tax implications as simple as possible for investors.

The proposals included the relaxation of the independent and restricted adviser definition, stating that it would introduce an additional rule in COBS 6.2B where that “advice under the core investment advice regime is capable of constituting independent advice despite the firm not considering a full range of financial instruments”.

As part of the consultation process, the regulator has proposed: 

• Streamlining the customer ‘fact find’, giving firms the ability to simplify and streamline their information collection exercise.
• Limiting the range of investments within the new regime so the advice is easier to deliver and understand.
• Making the qualification requirements for the new regime more proportionate to make sure simplified advice is less costly for firms. This would include allowing core investment advisers to undertake a minimum of 15 hours CPD each year, rather than the current requirement of 35 hours each year for retail investment advice. 
• Introducing a new rule that will allow firms to accept payment for core investment advice in instalments, even where the advice given is transactional and there is no ongoing service or ongoing subscription to a S&S Isa 

Under the FCA’s proposed rules, it applies to firms who just provide advice on investments within a S&S Isa.

“While other forms of investment Isa are available, we believe that limiting the regime to S&S Isas provides a straightforward option for investments and is likely to be an appropriate solution for consumers with uncomplicated needs and relatively low sums to invest,” it said.

Costly advice

The watchdog’s recent Financial Lives survey found 4.2mn people in the UK held more than £10,000 in cash and are open to investing some of it. 

"While keeping a cash buffer is a sensible way of dealing with unexpected expenses, consumers who hold significant amounts of excess cash may be damaging their financial position, as inflation reduces the value of their savings,” it said. 

As a result, the FCA’s proposed changes aim to prevent in-person financial advice from being too costly for many potential investors, as this can stop them from investing when it may be in their interest to do so. 

Sarah Pritchard, executive director of markets at the FCA, said: “Now more than ever, people across the UK should have access to useful and affordable financial products and services which can improve their quality of life and support the economy. 

“These proposals are part of our work to deliver a consumer investment market where people can readily access support and firms aren’t deterred from providing it.” 

 The proposal should help narrow down options for those who want to invest, but aren’t sure where to start. Chris Hill, Hargreaves Lansdown

The FCA said the aim is to allow firms to provide mass‑market consumers with straightforward financial needs greater access to simplified advice on investing into mainstream products.

“We want to make it easier for firms to provide advice that is proportionate to the needs of the consumer at a lower cost,” it said.

“This will help consumers who are holding large sums in cash to invest, potentially for the first time, into S&S Isas. This is something we committed to in our consumer investments strategy."

The FCA added: “We propose a new streamlined regulatory regime to increase firms’ confidence and commercial willingness to provide financial advice proportionate to the needs of the consumer. 

“It will support consumers with straightforward needs holding excess cash to invest it within a S&S Isa wrapper. 

“Firms should find it cheaper and easier to provide this advice to consumers who need it. Consumers should find that unnecessary friction in the advice process is reduced.”

Support from the industry

Chris Hill, chief executive of Hargreaves Lansdown, said it supports the FCA’s move to make investing simpler.

Simplified advice needs legislative change and to sit alongside Harriett Baldwin MP’s tabled amendment to the financial services and markets bill or similar, legislative solutions.  Prakash Chandramohan, Tisa

“It’s great that the FCA recognises that today’s all or nothing approach to advice doesn’t suit everyone, especially those with sufficient savings who are starting out on their investment journey.  

“The proposal should help narrow down options for those who want to invest, but aren’t sure where to start.”

However, Hill said the proposal only solves a small part of the much bigger advice gap problem.

“We welcome the fact that the FCA committed in September to a much wider holistic review of advice and guidance,” he said.

Likewise, Prakash Chandramohan, strategy director at The Investing and Saving Alliance, said it welcomed the FCA’s efforts to open up more mass market support for consumers. 

“Helping people with more affordable advice and personalised guidance will allow them to make informed decisions that best serve their interests and to make the most of their savings,” he said.

Yet he too added that the FCA has been constrained through the legislative framework, “which means the proposals will not solve the consumer disengagement problem that lies at the heart of this issue”.  

“Simplified advice needs legislative change and to sit alongside Harriett Baldwin MP’s tabled amendment to the financial services and markets bill or similar, legislative solutions,” he added.

“In these economically turbulent times, consumers need focused and effective help from financial services providers, and only a concerted, combined regulatory and legislative effort can deliver on it.”

Last week, the chair of the Treasury committee tabled an amendment to the financial services and markets bill which would allow the government to create a new ‘personalised financial guidance’ regime in the UK.

 Even if simplified advice takes off, there will be millions of savers and investors who either can’t afford to pay for advice or choose not to take it, or both. Tom Selby, AJ Bell

Under the proposed regime, provider firms who do not recommend a specific product or course of action would not risk this guidance being deemed as regulated advice.

If it goes ahead, the amendment could give firms confidence to offer people who choose not to take advice, or cannot afford advice, with more tailored guidance without fear of straying over the advice-guidance boundary.

Tom Selby, head of retirement policy at AJ Bell, said if the FCA is able to encourage more people to take good quality advice and invest for the future through this simplified advice initiative, that would be a good thing. 

“However, it is important this isn’t somehow viewed as a one-and-done solution to the advice gap challenge,” he said. 

“Even if simplified advice takes off, there will be millions of savers and investors who either can’t afford to pay for advice or choose not to take it, or both. 

“Low-cost advice will likely only provide a partial solution for a relatively small subset of the population, with the majority relying on the information and guidance they receive from other sources to make good decisions when it comes to saving and investing.”

Supply vs demand

In the consultation paper the FCA said in order to see an increase in the proportion of consumers with large amounts of excess cash having the confidence to invest these savings for better longer‑term returns, it is proposing supply and demand side changes.

On the supply side, firms have raised concerns on how best to interpret the existing flexibility within current suitability rules, noting prospective mis‑selling liabilities if advice given is not suitable. 

Additionally, firms have raised the viability of providing advice to mass‑market consumers – especially where there is a human element involved – given requirements around suitability and the initial customer fact find, adviser qualifications and adviser charging. 

In addition to the proposals mentioned, on the supply side, there will be new guidance clarifying suitability obligations so that firms have confidence on the minimum level of information expected for the fact find. 

This aims to reduce the time needed for the fact finding and resolve some firms' liability concerns.

On the demand side, the regulator said consumer research shows that less wealthy consumers do not tend to access professional support with their finances as often as wealthy consumers, though many want more support to make financial decisions like investing in a S&S Isa. 

When consumers do look for support, those who receive advice as opposed to guidance are more likely to hold investment products. 

 While stripping back qualification requirements and creating a narrow set of investment options may be enough to tempt some firms into the market, the regulator will likely have its work cut out assuaging concerns about liability. Tom Selby, AJ Bell

Additionally, consumers value the confidence a personal recommendation offers. 

The regulator is introducing increased flexibility in payment schedules relating to advice costs for consumers.

“Our aim with this is that the price of existing advice provided by humans, rather than robo‑ or auto‑advice, should reduce,” it said. 

“This should see a greater number of consumers willing to consider advice and a smaller number put off from receiving advice through perceived high charges. 

“Our expectation is therefore that more consumers will move some of their excess cash savings into investments within S&S Isa wrappers.” 

Through this, the City watchdog wants fewer consumers to experience a significant reduction in the value of their savings due to inflation, and for more consumers to benefit from greater returns associated with investing over the medium to long term.

The FCA said these proposals are a key part of its consumer investments strategy which sets out its three year plan to address the key harms in the consumer investment market.

‘A watershed moment’

Richard Wilson, chief executive officer at Interactive Investor labelled it “a watershed moment in the UK”. 

“It will determine whether we can begin to change the narrative around long-term financial wellbeing,” he said 

“Get it right and the financial services industry can find simple solutions that break down barriers to advice and crucially, reduce the advice gap. 

“What we need is simple solutions, with clear pathways that don’t make people feel anxious – solutions that are easy enough that people will actually do it.”

Wilson said financial advice currently centres around complex suitability homework which gets in the way of finding simple, affordable solutions. 

“This is joined up, right way round thinking from the regulator,” he said. “It’s a big deal.”

Alastair Black, head of industry change at Abrdn, said: “We need to get behind this and ensure it delivers a practical solution making advice more accessible to more people, ultimately helping to shrink the advice gap.

“Advisers want to be able to offer accessible, affordable advice to match clients’ wide range of needs. 

"And clients don’t always want, or even require, a full review, which can be costly to both deliver and buy.”

sonia.rach@ft.com

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