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

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

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”. 

 I do hope the FCA keeps a very close eye on any firms looking to offer this service. Darren Cooke, Red Circle Financial Planning

“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. 

“I am not going to be happy and will seek a full explanation as to why it has gone down.

“They’re likely to be looking for any reason to get back to where I was, otherwise I'll go to the Financial Ombudsman Service.

“I will then lose faith if they come back and say I have no grounds to complain based on investment performance.”

No change for advisers 

Many advisers welcomed the regulator’s announcement but said it will come as no change to them.

Darren Cooke, chartered financial planner at Red Circle Financial Planning, said: “I understand that they are trying to bridge the so-called 'advice gap' and part of that problem is firms being able to advise on lower investment amounts profitably.”

Cooke explained that this potentially reduces the costs of giving that advice, in limited circumstances, and will help make advice more accessible. 

“I note that all the positive comments are from D2C providers who will look to expand their offering and cover this,” he said. 

“I don't think it will generally impact advisers and our clients. 

“I do hope the FCA keeps a very close eye on any firms looking to offer this service though to ensure the quality of the advice they give, the scope of the advice is correct and they meet the consumer duty requirements for offering fair value to customers.”

Not having to consider a 'full range of financial instruments' makes sense to me. Tim Morris, Russell & Co Financial Advisers

Philip Martin, managing director at Unique Financial Planning, agreed.

He said it will “have little effect for most existing advice firms”, whose client bases will typically have far more complicated financial planning needs, fulfilled with a wider range of tax wrappers.  

“It may herald an interesting opportunity for product providers to get back into offering mass market advice in a more economical way however and I’d expect them to be giving serious consideration to re-entering with some of the historical barriers around cost and advice risk having been removed,” he said. 

‘Welcome news’

Elsewhere, Tom Kean, director at Thameside Financial Planning, said he has lobbied for years that if the FCA does anything, "it should be to simplify anything they touch".

"This feels like good news to me," he said. 

“However, as always, the devil is in the detail, and I immediately worry about the complexity for us, knock-on issues for PII and other goal-post-moving effects this might have.”

Kean explained over the years, he has suggested people seek-out alternative routes to investing via certain do-it-yourself investment platforms because the prospect of advisers handling the “smaller” client is overwhelming. 

“If this gets us closer to being able to take them on instead, obviously it’s a good thing,” he said. 

Tim Morris, IFA at Russell & Co Financial Advisers, said: “Streamlining and simplifying Isa advice is much needed. And welcome - if implemented well. 

“Most advisers would agree that taking on a new client to invest in an Isa isn't viable from a time/cost perspective.

“Many of my clients will top-up theirs online these days. That works well for me and them in terms of time and cost savings. 

“So not having to consider a 'full range of financial instruments' makes sense to me.”

Matthew Connell, director of policy and public affairs at the Personal Finance Society, said the PFS has long argued that there is a significant advice gap and that has to be addressed through more effective regulation

“These proposals – which were trailed by the FCA at the recent PFS Festival of Financial Planning – are a constructive and thoughtful response to our arguments, and we are confident that they do not undermine the progress made by the profession in delivering high quality advice over the last two decades.

“In terms of qualifications, the FCA’s proposals build on current rules, where advisers can give advice under supervision for four years while studying for the qualifications needed to become a retail financial adviser.”

Connell said it envisages that many advisers in the new category will go on to achieve qualifications to become a full retail financial adviser over time.

sonia.rach@ft.com 

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