Advisers looking to offer streamlined advice must filter the products they offer to make sure they are appropriate for this service, the regulator has stated.
The Financial Conduct Authority today (28 September) published final guidance on streamlined advice following on from the Financial Advice Market Review.
To offer streamlined advice, advisers must determine the target market for this service and then decide which products should be offered through this process.
The regulator has said advisers should not offer products through streamlined advice if they are incompatible with the needs and objectives for the target market.
Advisers should consider issues such as minimum contributions, which may not be affordable for their target clients, the risk and volatility of each product, and access and flexibility, including whether their target clients need to be able to change contribution levels easily.
The FCA’s guidance stated: “Some financial products are also unlikely to be appropriate for a streamlined advice process because of the amount of information likely to be needed by the firm in order to make a suitable personal recommendation to a retail client.
“In general we would expect that the more complex, risky, highly concentrated or illiquid the product, the more likely it is that firms will need more detailed information about the client’s broader portfolio in order to meet the firm’s suitability obligations.
“This is also likely to be the case where the firm is advising on transferring out of one product into another.
“This will be particularly important where the existing product is complex, such as a defined benefit pension transfer, and the firm will need detailed information about the client’s needs.”
The FCA has warned that providing streamlined advice is not an excuse for providing unsuitable advice and does not allow a firm to lower the level of protection due to clients.
Advisers should also triage their clients to make sure they are receiving the appropriate kind of advice.
The FCA said: “We are not prescribing the method firms should use to filter clients and gather information.
“Firms can use different mechanisms for filtering, such as decision trees or drop down lists, according to what best suits their potential clients and type of process.
“A firm may decide to use warnings as part of their filtering process to alert the client to the narrowed scope of the service.
“For example, a warning may state that the advice given will not take into account the client’s protection needs, or existing investments.
“Where a firm discovers that a client falls outside their target market it could choose to warn the client not to proceed or ‘lock’ them out of the system.”
Firms offering streamlined advice will also need to carry out ongoing monitoring of who is using this service and take action if clients are receiving unsuitable recommendations.
The FCA has said it will not be prescriptive about how the client should receive streamlined advice and said it is for each firm to determine what information they need to collect to provide advice in any given scenario.
Richard Ross, a chartered financial planner at Norfolk-based Chadwicks, said: “Although anything that starts to address the advice gap is to be welcomed, I feel this will bypass most traditional advisers who will not have the critical mass to make it cost effective – or worth risking awkward professional indemnity questions.
“Its real value sits with people who can efficiently manage big data and deliver automated advice.
“We are already seeing tech firms using data from workplace pension uploads to produce quotes and pro-actively market group benefits.
“Artificial intelligence driven streamlined advice to scheme members seems a natural next step and fits with the FCA’s desire to make arranging financial products easier.”
damian.fantato@ft.com
