IFAs will say FCA guided sales model ‘looks like robo-advice’

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IFAs will say FCA guided sales model ‘looks like robo-advice’
ID 174442900 © Mykhailo Polenok/Dreamstime.com

The regulator sent round a document to industry bodies such as Pimfa back in September called "Potential guided sales model in development – draft for discussion".

It outlined a sales journey “not intended to carry [the] normal obligations of an advised sale”, in an effort to lower barriers to entry for investment products and reduce the liability of full blown advice.

In principle, Pimfa is supportive of the document. Simon Harrington, a senior policy adviser at Pimfa, told FTAdviser: “If you want more people to engage, there’s only so much you can do to simplify the product before you need to look at simplifying the sales journey."

Last year, the FCA calculated there were 15.6mn UK adults with investible assets of £10,000 or more. Of these, 37 per cent hold their assets entirely in cash, and a further 18 per cent hold more than 75 per cent in cash.

The regulator said these consumers are at risk of having the purchasing power of their money eroded by inflation, which is why it is exploring solutions to get more consumers using investment products.

FCA's ‘Potential guided sales model in development - draft for discussion’ sent in September to Pimfa

While Harrington applauded this aim, he said the biggest pushback this sort of model will get from firms is that it "looks a lot like robo-advice". In the FCA’s diagram, it says it would presume the distribution channel for this non-advised sales process would be automated.

“We have to look at advice and guidance like a ladder,” said Harrington. “But you end up with a binary choice between guidance and full-fat advice. We think something needs to sit in the middle of that, where advisers can assess the broad appropriateness of a product based on an individual's needs.”

At Pimfa, Harrington said his team had come to the view that guidance only works if you have a captive audience. 

If individuals are already in an adviser’s client book, guidance-based sales work well, he explained. “But there is still the challenge of the route to market, and how you get the 15.6mn people the FCA has identified to become a client in the first instance. In that way, sales guidance might have a limit.”

Speaking generally, Harrington said the provision of advice is not just about taking someone through a sales process. 

“Advisers need to make individuals feel confident, and that’s a broad description of what we mean by the need for something in-between advice and guidance,” said Harrington.

“It’s not a particularly good outcome to move to a binary model where you see it as a sales process.”

Mark Hutchinson, membership director of the Personal Finance Society, said the premise that consumers need an investment fund or to buy a financial product "may not always be the most appropriate starting point".

Hutchinson added: "Professional advice for the consumer is more than just product placement, it is value added for the consumer in terms of their current circumstances and what they wish to achieve.

"Our work with consumers consistently reinforces that the value they derive from interactions with the financial services sector is being able to understand their choices and having the confidence and reassurance from a trusted professional. Widening access to professional advice is at least as important as making it easy to buy a low cost financial product.”

Issue of liability

If the FCA was to action its guided sales model which was automated, it would have to lay liability at the door of the robo-adviser, according to Derek Bradley, CEO of Panacea Advisers.

“Guided sales can only work if ‘robo’d’,” said Bradley. “In which case, the consumer protection should come from the software house and not from the adviser who decided to take up the app or programme.”

The adviser said “history would determine something like this couldn’t work unless it is robo-advice”, citing the British Steel debacle as a recent lesson in history.

“If there’s the slightest hint of any human input into something like this, I think it’s a recipe for disaster,” said Bradley.

“If you’re relying on someone writing software to generate a process like this and it’s outsourced, and then the software proves to be inadequate, it’s the adviser that still carries the care.

“So make the writer and designer of software responsible and not the adviser which bought the product.”

Anthony Villis, managing director of First Wealth, agreed the worry for financial planners over a model like this would be liability.

“If it’s going to create more conversations and engage more customers, that’s great. But we need to have confidence that regulation stays the same over a long period of time,” he said.

Villis also had “a slight hesitation” around the fact that the biggest value added as financial planner is not the product, but the financial planning at the beginning and the end of directing a client to a product.

“Then there’s the issue of how advisers will keep track of these products, as financial planning is about holding a clients’ hands and taking them through the wobbly periods.

“Where’s the financial planning [in this model]? What happens when a client gets jittery? Where are the backstops?”

Villis said financial planners are very much engrained in what they believe, and that some may not believe in this model at all - suggesting it’s something which might work for larger firms with bigger resources.

ruby.hinchliffe@ft.com