Providers have expressed scepticism about the Financial Conduct Authority’s proposed changes to the definition of advice.
The regulator has proposed a change which would mean only advice which offers a personal recommendation will be considered regulated advice. Everything else will be considered guidance and will generally be held to a lower expectation of suitability.
But providers – some of which have said they would like to help consumers more but are hampered by advice rules – pointed out the proposals could go further.
Aviva told FTAdviser the current rules mean it is unable to stop its clients from making bad decisions.
The company’s head of financial research, John Lawson, said currently Aviva cannot intervene to stop its clients take bad decisions, such as withdrawing all their retirement money in one lump sum, because it would constitute advice.
In response to the FCA’s proposals, an Aviva spokesman said the company is “disappointed”.
He said: “We believe the guidelines outlined in the most recent FCA publications provide limited opportunity for the industry to develop additional services or tools that will help customers make better choices.
“This must be a priority for the new government and we strongly urge them, the FCA and industry to work together to find a way forward.”
Meanwhile Scottish Widows stated the proposals take the industry “a few steps closer” to clarity on guidance, but it wants to examine the “finer details” to make sure there are “meaningful improvements”.
Last year HM Treasury proposed changing the definition of advice so it only includes personal recommendations.
In a consultation paper published on 1 August, the FCA stated this will mean guidance will cease to be a regulated activity for the majority of authorised firms.
But for regulated firms, the FCA has proposed the same rules should apply when they provide guidance as when they carry out other unregulated activities.
This means the client’s best interest rule, the principles for business and the fair, clear and not misleading rule will all apply.
While this is not the same standard for suitability applied when actual advice is given, it does means that those receiving guidance will have access to the Financial Ombudsman Service and the Financial Services Compensation Scheme.
The FCA said this would protect consumers if a regulated firm gives them misleading information when offering guidance.
As well as Aviva, the Association of British Insurers has also raised issues about the restrictive nature of the advice definition.
The ABI, which is currently working on a drawdown comparison tool, has said its development of this service has been hampered by having to stay within the current boundaries of guidance.
Tiffany Tsang, the ABI’s policy adviser for retirement and savings, told FTAdviser that for the tool to be most useful, it would have to provide some form of income projection.
She said: “A key problem we have come across is the difference between advice and guidance because it would not be legal for our members to provide any service that goes into advice.
“In an ideal world everyone should have a bespoke projection for their income but that is advice and we have to be very careful with this tool. We think about it every time we discuss this proposal.
“We are going to try and push the boundary to bring it as close to something people can relate to but keep it in guidance.”
Jamie Clark, pensions business development manager at Royal London, acknowledge the decisions people must make about their investments are complex, and errors could lead to serious consequences.
“That's why we would always support impartial financial advice.
“However we do recognise that for part of the population, guidance towards simple, low cost financial products would be useful and this capability is something we might look to develop at some point in the future.”
A spokeswoman for Standard Life said it was too early to comment while the ABI did not respond to a request for further comment.
damian.fantato@ft.com
