'Pausing simplified advice should give FCA time to rethink its strategy'

Make financial advice accessible, remove barriers, and let more individuals enjoy the benefits of informed financial decisions – irrespective of their financial situation.

The underwhelming response from the industry was not positive. And suggested that this was not the most well though out proposal from the FCA, with only a small fraction of advisers showing any interest.

The concerns raised by the industry had merit, rooted in the very essence of what quality financial advice should encompass. Moreover, the FCA seemed to completely miss the point of commercial viability.

Yes, increased technologies can help reduce costs, and in the future it may be possible. However, the idea that FCA-regulated firms, and the associated costs that brings, could be commercially viable in working with clients at this level is questionable.

The fees charged in return for the work provided simply would not add up for most firms.

The FCA's decision to pause, reflect, and reconsider in light of feedback is a testament to its commitment to effective regulation.

And all while most FCA-regulated firms are running scared of consumer duty, and not wanting to take any risk or leave themselves exposed to anyone questioning the value they provide for their fees – it is little surprise that the FCA has had to ‘pause'.

Financial advice is not merely about helping individuals choose where to park their funds. It is about understanding their situations, goals, and limitations.

A simplified system, while swift, might fail to capture these nuances, offering solutions that are technically right but personally misaligned.

For instance, the initial focus on Stocks and Shares Isas, while a straightforward approach, could potentially neglect other avenues better suited to individual circumstances. Financial strategies are seldom one-size-fits-all.

A potentially concerning element of the simplified advice regime was the proposed reduction in qualification requirements. The idea was to make it more feasible for advisers to provide guidance at a lower cost.

However, the very essence of financial advisory work is rooted in expertise and knowledge. By diluting the qualifications, there is a risk of compromising the quality of the advice delivered.

While it might appear as a cost-saving mechanism on the surface, the long-term repercussions on financial health and the potential for misadvised decisions are very real.

Advice vs guidance: a blurred line

By rolling the simplified advice proposal into a broader review of the boundary between advice and guidance, the FCA is acknowledging an essential distinction.

The guidance provides general financial direction but stops short of personal recommendations. Advice, on the other hand, delves deeper, crafting recommendations based on a comprehensive understanding of an individual's life situation.

The thin line that separates the two can get easily obscured in a 'simplified' system. This amalgamation into a wider review might just be the platform to delineate these boundaries more clearly.

The FCA's decision to pause, reflect, and reconsider in light of industry feedback is a testament to its commitment to effective regulation.

However, in my own view, this move may be indicative of an ill-conceived approach, where the FCA attempted to enter the industry without fully engaging with the specialists and gaining a comprehensive understanding of the practical implications, which would not be the first or likely the last time.

At Cameron James we specialise in helping clients obtain safeguarded advice on their defined benefit pensions. Every week we have numerous calls from clients with a £50,000, or even a £150,000, DB pension, who say they cannot find any adviser to help and have called 10 firms.

Clients are left perplexed by the FCA’s rules that have been put in place to protect them.

As the regulation states, all clients with a cash equivalent transfer value over £30,000 must obtain authorised and regulated advice.

These clients are completely marginalised from obtaining advice, with a pension value high enough to ‘need’ advice, but too low to be commercially viable for most reputable pension transfer specialists to get involved.

Clients are left perplexed by the FCA’s rules that have been put in place to protect them.

So while it is heartening to see regulatory bodies react to the industry feedback on simplified advice, acknowledging that those on the ground have a pulse on the practical implications of theoretical frameworks, this situation underscores the importance of earlier collaboration with industry’s specialists and an in-depth understanding of the industry from the outset.

Even a Twitter poll from the FCA on simplified advice could have told them almost everything they needed to know about the viability or appetite for simplified advice in the industry.

While the pause is a step in the right direction, it is imperative that the FCA uses this time wisely: engaging with stakeholders; understanding the concerns of financial advisers; and crafting a system that balances accessibility with commercial viability.

I champion clarity, depth, and personalisation. The FCA's decision to rethink its simplified advice strategy, in my view, echoes these values.

As we move forward, I remain hopeful that the resultant framework will be one that truly serves the diverse and evolving needs of the UK populace.

It is still beyond me that basic personal finance is not a mandatory part of the UK school education system – it would be more helpful to most in a cost of living crisis than learning about the daily intricacies of The Tudors, as fascinating as that is. 

Dominic James Murray is founder and financial adviser at Cameron James