The Financial Conduct Authority's plan to make financial advice accessible to more people by making it cheaper and easier for firms to advise customers on stocks and shares Isas is a noble one.
And while the proposals in its consultation paper – "Broadening access to financial advice for mainstream investments" – might create new business models and attract a new generation of investors it is certainly not without its challenges.
The simplified advice regime, for which a new handbook definition of core investment advice will be produced, proposes:
- Advice may only be given on investments into a new stocks and shares Isa.
- Advice may only relate to investments up to the value of the annual Isa subscription limit set by the Treasury.
- Advice may only be given on a sub‑set of investment products held within an stocks and shares Isa.
In the consultation, which ends February 28, the FCA says it will limit the regime to advice relating to investments held within an stocks and shares Isa wrapper in order to keep the tax implications as simple as possible for investors.
While advisers welcome the FCA’s proposals to address the advice gap, some are not convinced that many IFA firms will adopt the model.
Dominic James Murray, chief executive of Cameron James, says: “Advice firms are already struggling to service clients on the lower end of the spectrum with compliance costs, regulation, insurance, and overheads.
“For example, we already have to have a minimum portfolio size of £250,000 for final salary pension transfers, otherwise we can lose money transacting the business, which can now take up to six to nine months, which is no fault of the clients but just the industry regulation.”
With firms burdened by the weight of regulation and compliance, they may see this on the face of it as more work and may feel they neither have the time nor resources to offer core investment advice.
Prakash Chandramohan, strategy director at Tisa, says he has already heard from advice businesses who say they are unlikely to have this regime available to meet the timeline.
The FCA plans to publish a final policy statement and finalise rules and guidance in spring 2023, targeting implementation of the regime before the end of the 2023/24 financial year (end of March 2024) so firms will be able to start offering core investment advice from the beginning of April 2024
He adds: “I wouldn’t bet on a huge amount of firms taking up the regime because it’s actually very restrictive. It’s not available for Lifetime Isas, pensions, general investment accounts, or investment bonds, so there are a lot of exclusions. It’s only available for stocks and shares Isas.”
“There will be some firms who are quicker, who can get it off the ground. Because there are a few firms who do similar things right now and have got a similar business model up and running already, I think they’ll be quick, but I would say that for the majority of the industry. I think it’s going to be tough to have it off the ground by these timelines. It would be very tight for firms to launch such propositions by that time, especially those needing to start from scratch.”