Opinion  

Why I will not be using the FCA’s simplified advice regime

Chloe Cheung

Chloe Cheung

After numerous discussions within the industry about the advice gap, the Financial Conduct Authority's proposals to make financial advice more accessible feels like a breakthrough.

In its consultation paper on a new core investment advice regime, the regulator notes how firms have raised the economic viability of advising the mass market, while less wealthy consumers do not tend to access professional support with their finances as often as wealthy consumers.

“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, specifically within stocks and shares ISAs,” the paper reads.

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  Credit: REUTERS/Toby Melville

However, as someone who has not yet sought financial advice but does have a stocks and shares Isa, the proposed simplified advice regime is not something that appeals to me personally.

That is not to say that being invited by an Isa provider to pick your own investments from a choice including funds, shares and investment trusts is not a daunting task – especially for new investors and those who are more risk-averse.

This is despite providers offering investment ideas, fund shortlists and guidance on building a portfolio, which are often accompanied by a disclaimer about how the information does not constitute advice.

In its paper, the FCA also cites evidence suggesting that many consumers with excess cash savings would value a personal recommendation to gain confidence in investing, and prefer to receive support from a person rather than an online service.

But for some stocks and shares Isa holders like myself the availability of diversified, ready-made portfolios, which simply require savers to determine factors such as their risk appetite and investment horizon – neither a personal recommendation nor support from a person – is a sufficient substitute for simplified advice.

The power of inertia

As someone who has also been saving for much longer than I have been investing, it was not the lack of accessible advice that prevented me from investing earlier; instead, it was inertia that played a large role.

Although providers remind potential customers annually about a new tax year by advertising their stocks and shares Isa in the run up to April, in my case inertia still won the day on multiple occasions.

This was because choosing a stocks and shares Isa requires a little more effort than choosing a savings account. While the main priority of the latter is getting a decent interest rate, the former involves making comparisons across numerous providers on charges and minimum investment amounts.

I may not be the only one to be affected by such inertia, because when it comes to personal finance, inertia is not a new phenomenon. For example, it is not uncommon to come across surveys finding too many mortgage borrowers on a standard variable rate, or personal finance pages encouraging people to switch their savings account for higher interest.