Pimfa has called on the Financial Conduct Authority to consider its proposals for a “simplified advice” regulatory framework to help firms deliver their services to lower value clients.
The adviser trade body said advisers will need to be able to “diverge” from current suitability requirements to provide this form of advice on a restricted range of products for clients with “demonstrably simple needs”.
In a paper published today (July 6), Pimfa laid out why such advice is necessary, how it could work, and what the regulator would need to do in order to facilitate it.
“We need to look again at what is suitable and whether or not some form of assessment, allied to a simpler form of advice, is preferable to the client doing nothing at all,” the trade body said.
“The introduction of streamlined advice represented a laudable attempt to utilise technology to improve consumer access to advice.”
Pimfa highlighted the “limited” take up of streamlined advice services to date, which it said has largely been delivered through robo-advisers because advice firms are lacking confidence in delivering streamlined services.
Last year, the FCA calculated there were 15.6mn UK adults with investible assets of £10,000 or more, 37 per cent of which held their assets entirely in cash.
Currently, 4.1mn people are receiving professional financial advice, supplemented by 12.5mn people who are receiving guidance through both commercial and a government provider.
The FCA said last year it wanted to “explore regulatory changes” to help firms provide support on more “straightforward” investment products such as Isa wrappers.
Then in February, an FCA document circulated proposing a "guided sales model". While supportive of the document in principle, Pimfa argued it looked too much like robo-advice.
Advisers also weighed in. While most (41 per cent) had an open mind, a significant minority (19 per cent) said personalised guidance "creates significant risk of harm".
They also raised the issue of liability. “What happens when a client gets jittery? Where are the backstops?” said managing director of First Wealth, Anthony Villis, at the time.
How ‘simplified advice’ could work
With firms generally focused on complying with the FCA’s handbook requirements, Pimfa said advice businesses have largely avoided general or non-binding guidance not reflected in the handbook.
The trade body has therefore laid out a number of proposals for the regulator:
- Set out specific indicators for when firms can offer a simplified advice solution;
- Allow firms to “diverge sufficiently” from existing suitability requirements when providing simplified advice;
- Adapt handbook to provide firms with certainty about their responsibilities in offering simplified advice;
- Set out a specific set of prescribed questions which enable firms to establish a base level of suitability information with a view to recommending a product or set of products.
Pimfa said by relying on a limited subset of client information and deploying a risk-restricted range of products, advice firms should be able to arrive at a view about an investment which is reasonably likely to benefit a simplified advice consumer.
The recommendation, it explained, would be subject to a restricted set of services, wrappers and products you could reasonably expect a low value retail investor to benefit from – eg, a personal pension, Isa, or General Investment Account.