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Simplified advice will only work if linked to ‘reduction in adviser liability’

Simplified advice will only work if linked to ‘reduction in adviser liability’

Industry members have largely welcomed the regulator’s proposal of relaxing independent advice rules but some have argued there needs to be a lower level of adviser liability to work.

In a consultation paper, published today (November 30), the FCA said it would create a separate, simplified financial advice regime to improve people’s access to financial advice.

The FCA said this would make it cheaper and easier for firms to advise consumers about certain mainstream investments within stocks and shares Isas.  

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Derek Bradley, founder and chief executive of PanaceaAdviser, said the FCA's work sounded great but if the attempted move to simplified advice does not see a match in a reduction of adviser liability, it will not work. 

“At some later date the client on the receiving end of that simplification could claim they were mis-sold due to a myriad of factors that can apply with the benefit of hindsight,” he said. 

“For example, an unforeseen change in circumstances, a change in market conditions, affordability, a retrospectively change of investment attitudes even dare I say it, changing advisers that results in a 'I wouldn’t have advised you to do that' situation. 

“Any mis-sale will be based on a ‘coulda, woulda, shoulda' format and simplification should not see that door left open.”

He added: “Simplified advice can work only if it is linked to a simplified, lower level or even removal of liability.”

Likewise, Kusal Ariyawansa, a chartered financial planner at Appleton Gerrard, said simplification of advice is "long overdue", provided the public can be made aware of the limitation of what they receive and their potential complaints, otherwise “the process veers towards corporate suicide”. 

“No client has rung me during any of the recent downturns, concerned about their money, and that is because of the considerable time invested learning about how things work, understanding what can go wrong and whether they'll actually be affected,” he said.

“If we can't spend such time educating, because people expect to pay much less, the outcomes for both the adviser and client are not going to be what was expected.”

Ariyawansa said everyone wants to provide cost-effective advice for straightforward needs. 

“At present, the regulator is torn between the all-or-nothing approach supplemented by a complaints culture and our fear of the latent complaint,” he said.

Using himself as an example, Ariyawansa explained that for an individual with some spare cash in a bank, they may seek advice on how best to invest it. 

“I won't need a full financial plan detailing all the what-ifs. They most certainly will be put off if given lots of documents about the whole process...such as platform and fund due diligence.

“I expect a quick answer to my simple need.”

However, he added that the problem comes when an individual sees a statement where the money has gone down in value.