In Focus: Profitable advice business  

Consumer duty will challenge advice-guidance boundary


The Financial Conduct Authority's consumer duty will challenge the boundary between guidance and regulated advice as it seeks to raise standards across the industry, says Tom Selby.

Appearing on the FTAdviser In Focus fireside chat, the head of retirement policy at AJ Bell says the regulator has been clear the consumer duty is not meant to force firms outside of their regulatory perimeter, meaning advisers will not be forced to provide auxiliary services such as guidance.

But the challenge is, he adds, that "there is an implication there that non-advised providers need to get closer to the advice/guidance boundary in order to continue to comply with the consumer duty".

The consumer duty, coming into effect next April, will require firms to ask themselves what outcomes consumers should be able to expect from their products and services, and to ensure they achieve good outcomes and avoid foreseeable harm.

"There is a challenge there in having something that does raise the standards for all financial services firms and an existing regulatory environment which makes it difficult for firms to offer certain types of guidance, which might help consumer outcomes but which would either be considered to be financial advice or risk being financial advice," says Selby.

Currently financial advice is defined by whether or not there is a personal recommendation.

Selby says this means having a risk-profiling tool that allows people to narrow their options would currently be considered financial advice but might be something the consumer duty implies firms should be doing.

The new policy will consist of the consumer duty itself, some cross cutting rules dictating the behaviour the FCA expects from firms, as well as some more detailed guidance on what's expected.

Some say the policy is as big a deal for advice firms as the Retail Distribution Review.

Selby says: "It's quite hard to have something as big as the RDR when you think of the changes advisers have had to put through to their business models and the way they charge and things like that.

"It's probably a bit far to say it's bigger than the RDR, but I would say it's the biggest regulatory overhaul since the RDR in 2012."

To hear more about what the FCA expects from advice firms, how the market could change post-consumer duty and why it's never too late to prepare for the new rules, click on the link above.