The FCA is set to open the door to regulated ‘simplified’ financial advice to make advice cheaper and more accessible.
The regulator says the proposals will create a separate a new “simplified financial advice regime” and also make it possible to pay advice fees in instalments.
The regulator will consult on:
- Streamlining the customer ‘fact find’ so advice is more “straightforward” for firms and customers
- Limiting the range of investments within the new regime so advice is easier to deliver and understand
- Making the qualification requirements for the new regime more proportionate so delivering simplified advice is less costly for firms
- Allowing advice fees to be paid in instalments so customers are not burdened by large upfront bills
The watchdog says the new regime will make it “cheaper and easier” for firms to advise consumers about certain mainstream investments within stocks and shares ISAs, for example.
Separately, last week Treasury Committee chair Harriet Baldwin MP tabled an amendment to the Financial Services and Markets Bill which would allow regulated ‘financial guidance’ – financial support for consumers which would stop short of full financial advice but provide tailored guidance.
The aim would be to steer consumers in the right direction and help them avoid financial mistakes. Her plans could see providers offering simplified and personalised financial guidance to consumers when they are investing.
The FCA says its new simplified advice proposals announced today are part of its consumer investment strategy to “improve people’s access to financial advice” so they can invest with more confidence.
The watchdog’s recent Financial Lives survey found 4.2m people in the UK held more than £10,000 in cash and were open to investing some of it.
The FCA said that while a cash buffer makes sense, consumers who keep significant amounts of excess cash for very long periods may be losing out to inflation.
The FCA added that while “strong regulation” was essential for maintaining the UK’s high standards and protects consumers, “adjusting the regime” could help the advice market support mass-market consumers with simpler needs.
The FCA’s says its proposed changes also aim to prevent in-person financial advice from being too costly for many potential investors.
Sarah Pritchard, executive director of markets at the FCA, said: “Now more than ever, people across the UK should have access to useful and affordable financial products and services which can improve their quality of life and support the economy.
“These proposals are part of our work to deliver a consumer investment market where people can readily access support and firms aren’t deterred from providing it.”
Initial reaction from the industry to the proposal has been mostly positive.
Chris Hill, CEO at Hargreaves Lansdown, said: “We support the FCA’s move to make investing simpler and it’s great that the FCA recognises that today’s all or nothing approach to advice doesn’t suit everyone, especially those with sufficient savings who are started out on their investment journey. The proposal should help narrow down options for those who want to invest, but aren’t sure where to start.”
However he added: “The proposal only solves a small part of the much bigger advice gap problem and we welcome the fact the FCA committed in September to a much wider holistic review of advice and guidance.”
Prakash Chandramohan, strategy director at trade body TISA, said: “We welcome the FCA’s efforts to open up more mass market support for consumers. Helping people with more affordable advice and personalised guidance will allow them to make informed decisions that best serve their interests and to make the most of their savings.
“The FCA has been constrained though the legislative framework, which means the proposals will not solve the consumer disengagement problem that lies at the heart of this issue. Simplified advice needs legislative change and to sit alongside Harriett Baldwin MP’s tabled amendment to the Financial Services and Markets Bill or similar, legislative solutions.”
Tom Selby, head of retirement policy at AJ Bell, said: “If the FCA is able to encourage more people to take good quality advice and invest for the future through this simplified advice initiative, that would be a good thing. However, it is important this isn’t somehow viewed as a one-and-done solution to the advice gap challenge.
“Even if simplified advice takes off, there will be millions of savers and investors who either can’t afford to pay for advice or choose not to take it, or both. Low-cost advice will likely only provide a partial solution for a relatively small subset of the population, with the majority relying on the information and guidance they receive from other sources to make good decisions when it comes to saving and investing.
“It is therefore critical that policymakers are focused on ensuring both the advised and non-advised parts of the market are able to support people as much as possible. An amendment to the Financial Services and Markets Bill put forward by Harriett Baldwin MP, chair of the Treasury Committee, could see a new personalised guidance regime created.
“This has the potential to significantly improve the way guidance is delivered to savers and would likely benefit a much larger group of people than simplified advice.”
