Simplified advice regime should be backed up by tech

Simplified advice regime should be backed up by tech

The Financial Conduct Authority’s proposed simplified advice regime will rely on firms using technology if it is to add real value, according to this week’s podcast guests.

Appearing on FTAdviser’s podcast, Chet Velani, managing director of EV, said a lot of people were being priced out of taking advice, but a full digital solution could reduce the cost of advice by up to 90 per cent, and a hybrid solution could reduce it by 50 to 60 per cent.

Velani said: “Unless we start looking at areas like tech, and develop solutions that are more automated and digitised, I struggle to see how the vast number of individuals in this country who need help, will get the help.”

Article continues after advert

He added that the FCA’s proposed simplified advice regime was a small step towards this but it was moving in the right direction.

“We as an industry seem to be moving to a place where we're trying to reduce the cost of advice, improve the efficiency, and that can only be a good thing for consumers here in the UK.”

In November, the City watchdog published a consultation into simplified advice to make it cheaper and easier for firms to advise consumers on a handful of mainstream investments within stocks and shares Isas.

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

The FCA said it will limit the regime to advice relating to investments held within a stocks and shares Isa wrapper to keep the tax implications as simple as possible for investors.

Heather Hopkins, managing director of NextWealth, who also appeared on the podcast, agreed simplified advice supported by technology could help offer low cost advice to savers in this area.

“One of the most common requests that firms running workplace pensions get is: ‘I want to make a lump sum withdrawal from my pension’ and people might not know that they can do that in two tranches,” Hopkins said.

“If a person takes half now and half in the next tax year, that can have a huge impact on the amount of money that they actually are able to spend and use. 

“Those small things are where the intervention of advice supported by a machine and a qualified human, that is offered remotely, can offer low cost advice to help people who don't fit into the target market of a lot of advice firms.”

When looking at how the FCA could improve its simplified advice proposals, Prakash Chandramohan, strategic policy director at Tisa, said the regulator needed to look closer into liability, the advice-guidance threshold and to broaden the scope of the regime.

He said: “We're going to be suggesting to the FCA to really broaden the scope of the regime to make it much more wrapper agnostic.

“This is a hard thing because it's the restrictive nature of this regime that allows lower qualification requirements for advisers to be permissible. So if you broaden the scope of the regime, you're then increasing the qualification requirements.”