3. Simplified advice
The FCA is revisiting and proposing to extend the simplified advice concept from the ‘core investment advice’ it consulted on last year. Core investment advice was designed to support individuals with excess cash to invest it in a mainstream stocks and shares ISA. It would have been a once only advice event, with an upper limit of £20,000. The industry was united in viewing this as commercially non-viable.
The FCA explains the difference between its new version of simplified advice and targeted support as follows:
‘Targeted support would enable firms to use limited information to suggest products or courses of action based on a target market the consumer has been identified as belonging to. Simplified advice would result in a recommendation that is personalised to an individual consumer’s circumstances – i.e. “you specifically” would benefit from this action.’
Firms would need to have authorisation to offer simplified advice. My interpretation of the paper is this is the key new approach for firms with advice permissions, with targeted support for use by providers. I’d like to see adviser firms being able to choose from both these options – delivering on the ‘continuum’ the paper talks of.
With an aim to make this more commercially viable, the latest simplified advice proposals could support investing a lump sum or reviewing an existing investment, up to £85,000 in line with the FSCS limit.
However, all pension decumulation decisions would be excluded as too complex. This begs the question of how to close the ‘advice’ gap there, and also seems at odds with being able to use targeted support for pension decumulation decisions.
The core investment advice proposals included lighter training and competence requirements. But unless simplified advice were restricted to a single narrow product, the FCA no longer feels T&C standards could be reduced. While logical, this will challenge its commercially viability.
The paper asks for suggestions for making it easier / more attractive for consumers to pay for simplified advice without undermining the principles of the RDR. This implies less flexibility than when paying for targeted support.
Other aspects mentioned in the paper
Outside of the three key proposals, the Discussion Paper also considers:
- Compensation arrangements – whether FSCS protection should be available for all three options.
- Privacy and Electronic Communications Regulations (PECR) and other direct marketing rules – whether these will cause problems with any of the proposals.
- Impact on competition – including any specific aspects for larger or vertically integrated firms.
- Considerations for pension scheme trustees – in other consultations, trustees have expressed concerns over what support they can safely provide.
These could be important considerations in turning the proposals into workable support mechanisms.
The FCA and Treasury are looking for responses by 28 February. They also plan to engage with stakeholders through roundtables and meetings and as specific policy proposals emerge, to undertake consumer research. All of this will be considered alongside the broader legislative framework as the FCA updates its Handbook post Brexit.
While 2024 may be too soon to see any major changes, this is an important development and I’d encourage advisers to make their views known.