'Advice-guidance review has mis-selling scandal written all over it'

I’m relatively new to the profession, but it does feel as though relations are particularly strained at present.

Amongst the raft of new initiatives getting advisers all worked up is the advice-guidance boundary review.  

It’s understandable that after more than a decade of upheaval, the prospect of yet more regulatory tinkering is met with exasperation and suspicion.

The ultimate objective of the proposals is to close the ‘advice gap’ – the FCA’s very own Moby Dick.  

The numbers are indeed stark: a recent Financial Lives survey found that only 8 per cent of UK consumers received full financial advice in 2022. The irony, of course, is that this situation is in no small part down to the Retail Distribution Review.  

While the overall quality of regulated advice has undoubtedly improved, the number of advisers has fallen significantly and charges have remained stubbornly high, leaving those with smaller amounts to invest as collateral damage.

The advice-boundary proposals, I fear, are similarly short-sighted.

The provision of financial advice is an example of a Pareto optimisation problem, ie there are unavoidable trade-offs.

You can’t improve standards without increasing cost, and therefore reducing accessibility. You can’t improve accessibility without reducing costs by lowering standards.

If the dividing lines become blurred, it could end up devaluing the entire advice profession.

The FCA clearly thinks it can square the circle by splitting the function into two parts: low-cost/low-quality ‘guidance’ on one side, and high-cost/high-quality ‘advice’ on the other.  

The trouble is that, from the consumer’s standpoint, this will prove to be entirely abstract.

Consumers, on the whole, already struggle to appreciate the difference between independent vs restricted advice; the distinction between guidance and advice will add yet more confusion – presumably it will lead to four categories: independent advice, restricted advice, independent guidance and restricted guidance?

The proposals will also create another boundary, between regulated guidance and the increasingly popular non-regulated guidance provided by the social media finfluencers and that bloke in the pub.  

If the dividing lines become blurred, it could end up devaluing the entire advice profession and undermining the hard-earned gains of the past decade. Public trust is hard earned but easily lost.

So, who stands to benefit? Unsurprisingly, it’s the large companies. 

The changes would naturally bolster the sales teams of the corporate behemoths who will be empowered (and no doubt incentivised) to provide as much ‘guidance’ as they possibly can relating to their firm’s suite of in-house ‘solutions’ – back to the good old days then, of providers flogging their opaque, expensive products to the unsuspecting general public.  

It has mis-selling scandal written all over it.

Perhaps the FCA will consider this as a price worth paying for widening the provision of financial advice.

To me, entrusting the future of the profession to product manufacturers (who hardly have a strong track record as consumer champions) with all the inherent conflict and perverse incentives that will come with it, feels like a huge risk.

I can’t believe there aren’t better options – here’s a few for starters:

• Lowering costs of provision by reforming the Financial Services Compensation Scheme levy and professional indemnity market.
• Reducing barriers to entry for young advisers and second careerists by changing the (often exploitative) competent adviser status sign-off rules.
• Reducing uncertainty by stopping the endless regulatory changes that make planning for the future and growing an advice business so difficult.

Daniel Wiltshire is founder of Wiltshire Wealth