OpinionMar 3 2023

'FCA should remove restrictions on its advice proposals'

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
'FCA should remove restrictions on its advice proposals'
(Timon Schneider/Dreamstime.com)
comment-speech

Two years ago Pimfa set out a vision for the future of advice. The value of financial advice in our view is indisputable, but it is also the case that the gap between holistic financial advice and the services available to consumers who do not, and cannot, access advice is vast.

We have always been of the view that the widening advice gap needs to be addressed, and preferably bridged, in two ways. 

Firstly, we need to look again at the boundary between advice and guidance and re-evaluate what is currently permissible under the definition of guidance.

There are clear arguments for the introduction of certain aspects of personalisation, which are currently not permissible, but which would enable better outcomes for non-advised, largely disengaged consumers.

But any liberalisation of guidance should always stop short of even the illusion of a recommendation; guidance tells you what something is, advice tells you what you should do.

This is why we were happy to see the Financial Conduct Authority bring forward its proposals on core investment advice.

The FCA risks suffocating these reforms without giving them the chance to represent a real business opportunity for firms.

But let’s be clear, these proposals are imperfect. We have sympathy with the core argument put forward against the FCA proposals, namely that rather than being a simplified form of advice the proposals are really just a way to encourage greater use of stocks and shares Isas.

However, the narrow scope of the FCA’s proposals may also prove to be – and perhaps this was the FCA’s intention all along – a potential proving ground before they are expanded into other product areas.

If this is the case, the proposals need to work, and to work they must be commercially viable. But that leads to our main criticism of the FCA proposals.

As currently set out, the FCA risks suffocating these reforms without giving them the chance to represent a real business opportunity for firms. The proposals apply a £20,000 lifetime limit, which makes some sense given that the annual contribution limit for Isas is set at £20,000. But to impose this limit over the lifetime of a saver makes no sense whatsoever.

On the face of it, it appears the FCA is targeting an established demographic that has around or a little more than £10,000 in investable wealth but do very little with it.

But this brings us back to the core argument against these proposals, which is that they act as a one off to provide those assets with a home – a stocks and shares Isa – rather than as a vehicle to encourage people to save and invest beyond that single transaction.

The focus should be on how this service can be used to build new client relationships and trust.

Our support for a simplified, or core, advice regime has always been based on two arguments. Firstly, we recognise there are significant behavioural barriers that prevent people from investing their savings. Put simply, some people fear investing in the first place.

Flawed as the FCA’s proposals are, giving access to professionally qualified advisers – even qualified to a lower level – will provide savers with confidence to take decisions that they historically have tended to avoid.

The second is more nuanced. I have written often in these pages of the difficulty of explaining the value of something, such as advice, to people who have never benefitted or know someone that has benefitted from it. Providing an accessible and cost-effective path towards advice is an obvious way to demonstrate its value.

So, the focus should be on how this service can be used to build new client relationships and trust. That way, when a client’s needs demand it, it should be possible to move them towards a more traditional advice model with relative ease because the transition to that advice model is something the client sees as a logical next step.

To achieve this, we would suggest the FCA remove the £20,000 cap. In doing so the regulator will make these proposals more commercially viable for providers who do want to offer such services while at the same time providing consumers with the opportunity to build wealth over the course of many years, rather than deposit a lump sum and then move on.

Pimfa believes it is in the interests of the industry to get behind the FCA’s proposals. But for them to truly work, the FCA will have to rethink the unnecessary restrictions it has placed on its own proposals.

Liz Field is chief executive at Pimfa