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Devilish details in the FCA's simplified advice regime

Devilish details in the FCA's simplified advice regime

The Financial Conduct Authority has outlined new proposals to relax the independent financial advice rules to make it cheaper and easier for firms to advise customers on stocks and shares Isas. 

The consultation paper, published today (November 30), outlined how there are currently 4.2mn consumers holding £10,000 or more of investible assets entirely in cash, despite having appetite for investment risk.

The regulator is aiming to reduce by 20 per cent the number of consumers holding this much in cash within the next three years.

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Here are the key things to know about the consultation:

The value of face to face advice

Despite many developments in robo-advice, consumers still want face to face financial advice.

If offered a free consultation, 51 per cent of adults would choose to meet face-to-face with an adviser, compared with 6 per cent who would choose a robo-adviser, according to research conducted by Mintel and quoted by the FCA.

Consumers also make very few of the more complex financial decisions without some sort of human intervention, valuing human interaction, according to Ignition House.

There is also pressure from the other side of the table, with the FCA saying that financial advice firms have raised the economic viability of providing advice to mass-market consumers, especially where there is a human element involved. 

Consumers are willing to pay

The FCA’s regulatory return data shows that the average adviser charges between 1 and 3 per cent of the investment sum, however consumers are happy to pay for advice on investments of a smaller size.

Research from Ignition House, quoted by the FCA, showed that most consumers would be willing to pay up to 1 per cent, or £100, for advice on a £10,000 investment sum. 

Moreover, the most recent data from HMRC showed that the average stock and shares Isa has £9,000 or below in it, so the current level of fees charged by financial advisers would not be considered proportionate by most consumers.

Therefore, the FCA concluded that certain savers are not currently served as effectively as the could be by the traditional advice market.

What qualifies an adviser to give this advice

There are a number of qualifications an adviser will need in order to offer core investment advice.

These are:

  • The permission for advising on these investments must be held by the firm, or principal firm for an appointed representation adviser
  • The proposed advice service must meet the scope set out in the definition of core investment advice
  • The adviser must be qualified to give holistic financial advice, equivalent to QCF level 4 or above, and;
  • Firms must ensure requirements under the senior managers and certification regime and approved persons regime are met for individual advisers and ARs.

Certain exclusions

Some areas of the market will not be covered by the core investment advice regime.

Advice given to consumers around investing into restricted mass market investments, and non-mass market investments are excluded.

The FCA said although these “high-risk” investments are currently included as qualifying investments for stocks and shares Isas, it believes they are “generally inappropriate” for ordinary retail investors. 

This will provide a greater degree of consumer protection to balance to lowering of regulatory requirements elsewhere, including the competence requirements for advisers.

Proposed payment structures

Firms will be allowed to accept payment for this new form of investment advice in instalments, even when advice is given as a one-off.

This has been proposed by the FCA to encourage consumers who have been put off receiving financial advice due to the initial fees.

The regulator said its experience of supervising the market suggests firms generally do not make use of the current limited opportunities available for accepting payments for advice in instalments.