The Financial Conduct Authority has admitted that its proposals for targeted support may give larger advice firms a competitive advantage and result in more consolidation.
The regulator also admitted that its proposals for simplified advice may make "holistic" advice more expensive and less easily available.
This morning the regulator published proposals for reforming the advice-guidance boundary.
These include a new approach called targeted support, allowing firms to provide support tailored to groups of people in similar circumstances underpinned by the concept of generic suitability rather than individual suitability.
To facilitate this, the FCA has said it is open to allowing firms to offer this service for free through cross-subsidy, which had been banned by the RDR, as long as appropriate protections are in place.
But the FCA said: "Access to customer data and the ability for firms to recover costs by cross subsidising this service through fees associated with other service provisions may mean that larger firms are better able to provide more innovative and efficient targeted support to consumers, as well as offer this service without explicit charges.
"It is possible that in the long run this could give advantages to larger firms and result in some market consolidation and less competitive pressure.
"However, the advantage that larger firms may have in providing a service is not a reason to prevent that service from being offered, and nor is there a direct link between some market consolidation and consumer detriment."
The FCA said targeted support would allow advisers to suggest actions to consumers which would be appropriate to a person in similar circumstances and could result in the adviser suggesting options to the consumer on the basis of ‘people like you’.
According to the FCA, targeted support is most likely to be of interest to vertically-integrated firms which are in a position to recommend their own products.
In the long run this could give advantages to larger firms and result in some market consolidation and less competitive pressure.FCAThe FCA acknowledged firms could use this to gain market share for products which are inferior to those offered by their competitors but it said this may be a better outcome than the counterfactual of consumers receiving no help or support - and it pointed to its existing rules on firms acting in good faith and avoiding foreseeable harms to help avoid this scenario.
The proposals also include a new form of simplified advice which would make it easier for advisers to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.
Simplified advice would be one-off advice, focused on one specific need, and would not involve analysis of a consumer’s circumstances that were not directly relevant to that need.
But the FCA said the introduction of simplified advice could make traditional advice more expensive.
It said: "The proposed simplified advice regime is intended to result in one-off advice on simpler needs being offered to consumers at a lower price point than holistic advice.
"The impact of this on the advice market will depend on the uptake by providers and the cost at which they can serve consumers. There will continue to be a portion of the market, in particular consumers with more complex needs, or with greater investible assets, for whom a fuller assessment of their needs as part of holistic advice would remain the right solution.
"If firms that currently offer holistic advice put some of their resources towards simplified advice, it is possible that holistic advice becomes more expensive or less easily available, at least while supply adjusts.
"However, given that a majority of the mass market is currently underserved by existing financial advisers, the introduction of a new simplified advice regime is likely to increase access to advice overall."
damian.fantato@ft.com
