Regulator promises new streamlined advice regime

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Regulator promises new streamlined advice regime

The Financial Conduct Authority has revealed it will produce new rules for streamlined advice this year.

Speaking at the FCA’s annual public meeting today (18 July), the regulator’s chief executive Andrew Bailey said the watchdog would deliver new rules for streamlined advice in a bid to plug the advice gap.

Post pension freedoms, Mr Bailey said: “The demand for advice and support for consumers now operates in both the accumulation stage and in the decumulation phase.

“Alongside [increasing demand for advice] sits the Financial Advice Market Review. We are continuing work on our approach towards advice and that applies particularly towards pensions.

“As part of FAMR we will introduce new rules, most notably on streamlined advice services, which we hope will ensure more cost effective investment advice.”

He acknowledged more work was needed to tackle the advice gap, this was a long-term challenge for the regulator and one the watchdog may never be able to totally resolve.

Last month the Financial Conduct Authority was told to clarify their definition of streamlined advice as a third of those not currently offering it want to do so in the future.

As part of the Financial Advice Market Review’s aim to close the ‘advice gap’, the FCA is consulting on updating its guidance on an advisory service that meets a simpler or focussed consumer need, so called streamlined advice. 

The FAMR report defined streamlined advice as: "’A term used to collectively describe advisory services (such as focused and simplified advice) that provide a personal recommendation that is limited to one or more of a client’s specific needs. The service does not involve analysis of the client’s circumstances that are not directly relevant to those needs."

Steven Cameron, pensions director at Aegon, has said there was a huge swell of opinion predicting the growth of this area of advice, with 80 per cent of advisers polled by the provider expecting an increase in demand for streamlined advice services. 

However, when it comes to meeting an increased demand, the outlook is mixed. 

Of the 37 per cent of advisers who currently offer streamlined advice, nearly six out of 10 (58 per cent) are in favour of extending its use. 

Of those who don’t currently offer it, future intentions are evenly split with 38 per cent saying they’d be interested in offering it, 32 per cent who haven’t made up their minds and a further 30 per cent who are not interested.

When it came to attracting a younger client base, nearly seven out of ten (68 per cent) of those surveyed thought streamlined advice could be a useful method of encouraging younger people as clients, suggesting widespread availability could help close the advice gap and potentially build the foundations of lasting client relationships.

However, this optimism relies on removing certain barriers to the future success of streamlined advice. 

By far the greatest barrier is regulatory risk, with 62 per cent of advisers citing this as a concern. 

This was followed by the time required to develop and market a proposition (22 per cent) and lack of consumer awareness cited by one in 10.

Of the likely scenarios put forward by the FCA, where streamlined advice would be appropriate, 76 per cent of advisers thought it likely that they would use it for ‘fund choice for employees who have been automatically enrolled into their employer’s scheme’. 

This was closely followed by 72 per cent of advisers likely to use it when clients had ‘a small sum to invest’.

The FCA scenario least favoured by advisers was advising on ‘a range of ETFs’, with 64 per cent of advisers suggesting they were not at all likely to use streamlined advice in this situation.

emma.hughes@ft.com