The Financial Conduct Authority has paused plans to create a simplified advice regime after limited support from the industry and has instead rolled it into a wider review of the boundary between advice and guidance.
In an update today (August 3), the FCA said it will not go ahead with the core investment advice regime, which aimed to allow firms to provide consumers with straightforward financial needs access to simplified advice.
The regulator said it will now instead incorporate its work into its review of the advice/guidance boundary.
The FCA said: “Given the potential for more significant change that is now possible through the advice guidance boundary review, and given the limited support from industry for the initial set of proposals consulted on, we have decided to roll the development of these proposals, taking onboard the feedback we received, into the broader review.
“This will allow us to support the more substantial changes that are being asked for and considered through the review.”
The simplified advice regime proposed relaxing advice rules so that firms could offer simplified advice for clients with up to £10,000 in cash savings.
The regime was limited 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 advice-guidance boundary review
In its update today, the FCA said the advice guidance boundary review aims “to ensure that consumers get the help they need, at the time they need it, and which is affordable to them”.
The key themes and insights that have emerged from its early phase of work, include:
- The solution to this challenge will not be met by changes to regulated advice alone. The FCA said it needs firms to actively engage and provide flexible forms of support that can adapt to different types of financial decisions.
- To provide more support to more people it will be necessary for firms and consumers to manage risk, rather than eliminate it.
- Any solution will rely on support being provided on a commercial basis. The review will need to focus on outcomes and design a regulatory system where commercially viable models of support can emerge.
- This review should leverage the consumer duty, to set clear expectations for the support that firms provide their customers and ensure that consumer protection remains at the core of any future regime, and the FCA will work closely with the Financial Ombudsman Service to do so.
Sarah Pritchard, executive director, markets at the FCA, said: “It is vital that people get the help they need to make effective decisions – whether that be guidance or full financial advice from a qualified financial adviser.
“This is particularly so now, with the cost-of-living pressures. We want consumers to have greater confidence to invest, but to achieve that people need access to the right information to help them make decisions, understanding levels of risk.”
Pritchard said the FCA’s joint work with the Treasury in the months ahead will help to achieve that.
“In the meantime, and to see quicker improvements, we are taking steps now to give firms greater confidence to support consumers, pending broader reform, by clarifying the boundary of the current regime,” she said.
The FCA plans to issue a further update in a policy paper that will be published in the autumn.
Chris Hill, CEO of Hargreaves Lansdown and FCA Practitioner Panel member, said: “Data and digital tools mean there is now a lot more we can do to nudge consumers to better investing behaviours.
“The clarity the FCA are bringing today on the advice boundary, and the commitment to review this, show that we can develop a new regime to ensure firms can do more to drive better consumer outcomes.”
Industry views
In March, Therese Chambers, director of consumer investments at the FCA said the review of the advice and guidance boundary will cover both accumulation and decumulation products but will exclude defined benefit transfers.
Speaking at The Investing and Savings Alliance’s Financial Advice and Guidance Conference in London at the time, she said the regulator has been actively considering the scope and approach of the review since the start of the year.
Elsewhere, in a speech by Pritchard in September, she said the regulator will make sure that it does what is best for the UK, retaining market integrity and protecting consumers.
Commenting on the latest update, Steven Cameron, pensions director at Aegon, said he welcomed the detail on the direction of travel of the advice guidance boundary review.
"We particularly welcome the FCA acceptance that the solution to supporting customers make informed financial decisions will not be met by changes to regulated advice alone," he said.
"Advisers provide hugely valuable support to millions of individuals each year, but particularly since the retail distribution review there has been a persistent advice gap. The current regulatory regime, with very limited options alongside full regulated advice, has created an even wider ‘support gap’, which has been exacerbated by the cost of living crisis.
“It’s imperative that advice services continue to thrive. But to complement this, there could be major benefits if those regulated firms who want to, were permitted to offer a new more personalised guidance service. This might allow them to support currently unreachable client groups, getting them on the road to good consumer duty outcomes. And once these clients begin to appreciate the benefits, they’re much more likely to return to the adviser for full advice when they need it."
Tom Selby, head of retirement policy at AJ Bell, said the regulator and Treasury "deserve credit" for recognising that pushing ahead with ‘core advice’ plans that very few in the industry supported was a dead end.
"If government, the regulator and the wider industry are to provide more useful guidance and advice to the millions of people who desperately need it, ensuring broad support for any solution is essential," he said.
“Ultimately, the success of the advice guidance boundary review will be judged on the outcomes consumers experience and the quality of help they receive under any reformed regime.
“If a solution is proposed but nobody is willing to offer it, then clearly there will be no consumer benefit – and the fact only 7 per cent of advisers were interested in the proposed ‘core advice’ regime spoke volumes.
"That the FCA and government have established working groups representing both the industry and consumers as part of the review should ensure any proposed solutions are both practical to implement and in consumers’ interests.”
sonia.rach@ft.com
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