The Association of British Insurers (ABI) has called on HM Treasury and the Financial Conduct Authority to “go further” in their reforms by changing the advice-guidance boundary to help do-it-yourself investors.
In a statement issued yesterday (September 29), the insurance trade body said it wanted the government to reform the second Markets in Financial Instruments Directive (MiFID II) regulation in its review of the wholesale and retail investment market.
Specifically, the ABI proposed the Treasury amended the Regulated Activity Order, to define “what does and does not entail financial advice”.
Alternatively, it said the government could create a new regulated activity enabling “more personalised guidance”.
The directive was transferred to the UK after Brexit. The government is now reviewing consultations in order to tailor the regulation to UK financial markets.
By looking at the advice-guidance boundary in its review, the ABI argued consumers without a financial adviser would be better served by UK financial services providers.
“This will enable do-it-yourself investors and pension savers to get better financial guidance from their provider, so they can be more informed and reassured about their investment decisions,” it explained.
The FCA confirmed earlier this month it is still exploring new forms of advice as part of its consumer investments strategy and said it was particularly interested in changing its rules so firms would find it easier to provide guidance to their customers.
It said this was an area it had received a lot of feedback on in its call for input on consumer investments.
“We are exploring how we can make regulatory changes to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products,” it said.
“This may be through delivering guidance that provides more tailored support or through better targeted advice services.”
In order for the FCA to change its rules the Treasury would have to change legislation in this space.
The ABI said Treasury-mandated reforms would help pension and investment platform providers offer more explanations around risk, scams, and fund transfers.
In particular they could:
- Explain to a customer about the possible consequences of taking a lump sum from their pension;
- Talk a customer through what a sustainable pension income could look like, taking account of their circumstances but without a full fact find;
- Provide more details on risk within investment pathways such as withdrawal rates not matching the investment pathway objective;
- Give guidance to a customer that people often secure a guaranteed income at a particular age to help ensure they do not run out of money in retirement;
- Intervene more strongly to warn customers against scams and dubious investments;
- Help customers decide to transfer from one fund to another, within the same provider, where this is likely to be in their interests.
The ABI also said it wants the notification that tells customers their investments have fallen by 10 per cent abolished.
“Often when this happens customers get spooked and withdraw their investments leading to cash losses,” it explained. “In most cases, if they remain invested the stocks will recover and continue to make gains.”
Reuben Overmark, ABI’s senior policy adviser and investment platforms specialist, said: “It’s a positive step forward that the FCA has indicated they will introduce a new way for firms to help customers start investing in a stocks and shares Isa – but we’d like to see them, and the Treasury, go further.
“By reforming the advice-guidance boundary, pensions savers and do-it-yourself investors will be able to get more help and reassurance from their provider on their investment decisions.
“Providers will also be able to reassure customers in times of economic volatility and intervene more strongly to warn customers against scams and dubious investments.”