FCA will take ‘timely action’ over poor simplified advice

In November, the City watchdog published a consultation into simplified advice to make it cheaper and easier for firms to advise consumers on a handful of mainstream investments within stocks and shares Isas.

As part of the regime, the FCA said it will create a new handbook definition of core investment advice. 

In a response to the Treasury committee published today (January 30), the City watchdog said the core investment advice regime would retain most of its current rules.

The revised qualifications for the core investment advice regime are commensurate with the narrower scope of the advice to be given.Sarah Pritchard, FCA

Advisers providing simplified advice will still need to gather sufficient information to make a personal recommendation, ensure any recommendation is suitable, adhere to product governance rules, disclose initial and ongoing charges and provide a suitability report. 

“Should such a regime come into force, we will monitor and supervise its implementation and operation, including using data where appropriate, and take timely action where we identify issues,” the regulator’s executive director for markets, Sarah Pritchard, said.

“We would expect firms to have appropriate processes in place to triage potential clients effectively. 

“As part of the suitability assessment process, firms must ensure that those with more complex financial needs are identified as requiring services beyond core investment advice.

“We recognise that a stocks and shares Isa product will not be suitable in all circumstances, which is why firms will still need to assess suitability for each client they advise.”

In her response, which was submitted to the Treasury sub-committee for financial services regulations, Pritchard also said the revised qualifications for the core investment advice regime “are commensurate with the narrower scope of the advice to be given”. 

Core investment advisers will be required to pass two modules of the existing RQF Level 4 qualification for financial advice: financial services, regulation and ethics, and investment principles and risk. 

We would be concerned about providing an anticipated price point [for simplified advice].The FCA

But they will not need to pass the additional examination modules required within the holistic financial adviser framework, such as on retirement planning or protection planning, which the City watchdog said “are outside of the scope of core investment advice”.

Under its proposals, consumers receiving simplified advice will have access to Financial Services Compensation Scheme protection, as well as be able to complain to the Financial Ombudsman Service.

Asked if its proposals addressed concerns from firms that they could be liable for mis-selling, Pritchard said if firms follow the FCA’s rules and guidance, they will be discharging their regulatory responsibilities and they should be used to ensuring the advice they give is suitable.

“The consultation process provides firms with the opportunity to feed into these proposals and we welcome any feedback, including on the draft guidance, before finalisation,” she added.

The FCA has drafted and published guidance detailing its expectations of how the core investment advice regime ought to be delivered.

Asked what the estimated price point for where the FCA expects core investment advice fees to land, the regulator’s markets director said it could not provide a figure.

“We would be concerned about providing an anticipated price point,” said Pritchard.  

“This could be misunderstood by the market as a ‘regulator-approved price’, potentially limiting competition.”

‘Strong appetite’ for cheaper, simpler advice

In its response, Pritchard also cited data to suggest “there is a strong appetite” for a market which offers cheaper and more simplified financial advice. 

“Research shows mass market consumers see the value of a personal recommendation, which financial advice offers,” she said.

In December 2020, the FCA found there were 15mn UK adults with investible assets of £10,000 or more.

It also found 8 per cent of UK adults (4.1mn) had received regulated financial advice in the last 12 months, while 28 per cent (14.7mn) had used information or guidance.

“Our pre-consultation engagement with industry also highlighted wide initial interest in our proposals from a range of firms,” said Pritchard.

“As part of the ongoing consultation, we are seeking insights from industry, consumer groups and policy makers, both to support us in creating the most effective set of policy proposals for the final rules, and to allow us to establish with greater precision the level of appetite for the regime. This will inform our final cost benefit analysis.”

Late last year, the FCA said it was reviewing the advice-guidance boundary as a result of HM Treasury's wider review of EU regulation announced by chancellor Jeremy Hunt.

The regulator has, however, acknowledged its introduction to a simplified advice regime is likely to be of more interest to larger financial services firms.

ruby.hinchliffe@ft.com