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Categories:Advisers,Regulation

IFP says simplified advice needs to be built from scratch

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The Institute of Financial Planning is calling for a full review of simplified advice outside of the RDR, saying a thorough assessment from scratch could take up to two years.

Last week, Money Marketing revealed the FSA has delayed publishing guidance consultation on simplified advice until later this year.

In March, FSA chief executive Hector Sants told the Treasury select committee the regulator was committed to publishing a paper on simplified advice by the summer.

IFP chief executive Nick Cann says few advisers, if any, can deliver simplified advice and achieve profitability without significant changes to regulation. He says a complete overhaul of the work done so far on simplified advice is needed to find a solution that is attractive to the public and advisers.

He says: “It is going to be a fairly long and drawn-out process to be able to get simplified advice right and in order to do that, we need to start from scratch and see what the best ideas are. Then you need to appease the Financial Ombudsman Service and regulatory bodies, which will take a good 12 months to two years.”

Cann says the rethink is needed to ensure a large proportion of the population is not left without the ability to access financial advice.

He says: “Using the internet more effectively to view and consider people’s situations should be a given. The need for consumers to complete separate fact-finds with every possible adviser is ridiculous and more should be done to consider such issues from a practical consumer perspective.”

Evolve Financial Planning director Jason Witcombe says: “I think what Nick is saying makes sense. With the RDR being such a large project, it makes sense to have simplified advice as a standalone project and make sure the time is taken to get things right.”

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Readers' comments (9)

  • Whilst I agree with what Nick Cann has said above, the simplified advice regime should have been ready BEFORE the RDR deadline, so that those who did not wish to obtain their level 4 & remain full advisers, could have worked through a firm as "simplified advisers" providing simplified advice. To loose so many trusted inidividuals and then sort out simplified advice afterwards is criminal (I finished my Lvl 4 in July).

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  • I still think we need to be told what part of "advice" is removed in order to arrive at "simplified advice" Any clues anyone?

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  • I totally disagree with the concept of simplified advice in the first place, as is always leads to miss-selling! Have we learned nothing from the past errors, particularly in the area of bank advice?

    After all do you hear of a partly qualified Solicitor?

    If people want to specialise in a particular field then that's fine, as long as they have a good understanding of the overall concepts of financial advice. Too often simplified advice leads to miss selling, as often the provider of this type of advice is only trying to shoehorn their customers into a limited product range that may not suit that client’s situation.

    Banks and Insurance Companies should be product providers and not advisers, this is the only way consumer can recognise professional advisors from sales reps who are often under immense pressure from targets and management to sell unsuitable products. If these organisations want to sell their products, then do so by having people that are called Sales Reps and not try to dress them up as advisers or cloud the situation by calling it simplified advice.

    As long as this muddled thinking is going on we are going to be doomed to repeat the mistakes of the past. We also need a regulator has the balls to take on the large corporations like banks and insurance companies rather than looking for ways to reinvent their stitch up advice process.

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  • Peter - I see your point but simplified advice is just that.

    The whole point should be that simplified advice should revolve around a flow chart.

    1. Customer gets a mortgage - get life and CI to protect it
    2. Customer has a salary - get IPI to protect it
    3. Write a will
    4. Savings - build an emergency fund
    5. Savings - save into an ISA
    6. Long term savings - NEST or pension default funds

    Not much advice needed there right? That is simplified advice.

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  • @ Nick Bamford - My view is that Simplified advice can really only work with Regulated Products. Regulated simple products are a necessary but not sufficient condition.

    What gets left out ? - fact finds, research, suitability letters, basically all the things that currently make the giving of advice unaffordable to the mass market.

    Each and every regulated product will need to be capable of being sold at Tesco - by people with no qualifications whatsoever.. Any other solution will simply not work. Start to add back all the compliance baggage and it will not be cost effective for the buyer or the seller.

    As an example I would see a multi - asset ISA with nil initial charge and 1% pa max annual. sounds familier ? almost CAT standard or SH but this time without all the compliance expense.

    If the FSA do not produce a Simplified Process without all the current compliance requirements it simply will not work.

    Personally I'm not holding my breath and see the future as being largely Ex only online with the adviser market shrinking to a much smaller number of advisers dealing only in complex and expensive advice.

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  • I tend to agree with Harry.

    Simplified advice should focus on the 'essentials' that represent the straightforward needs that are currently served by a straightforward solution. These are protection, simple savings, basic pension accumulation, risk related investment (OK, so a subjective area) and basic At Retirement options.

    Think about many of the advice situations that have resulted in a single, simple solution to the originally expressed need that you as an adviser (IFA or otherwise) have completed for clients over the years. This does not mean that the process should NOT explore whether a more complex problem exists or a potential hollistic solution is available but would aim to 'rule' it out through factfinding. Should it exist then a simplified process should stop, explain that more complex areas could be considered and offer an introduction to an IFA.

    Therefore I see simplified advice working hand in hand with other advice models rather than stand alone. This means that should the simple solution to a straightforward need not be proved true by the process, the client is not left hanging, but has a choice (and the subsequent charge that accompanies it)

    Of course you can do this now through focused financial advice and the much derided basic advice regime. These areas could and should form the basis of the suggested external review of simplified advice, as the FSA has blatantly failed to grasp this particular issue as it should have.

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  • Haven't the banks and building societies been working for decades on the basis of simplified advice? The only thing that'll change post-2012 is that they'll no longer be able to charge for it twice what an IFA charges for full advice. There ~ sorted.

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  • Harry I think you just illustrated my point why simplified advice is dangerous, ISA and Pensions for example using default funds chosen by a product provider that only has its own best interests at heart and not the clients.

    Making a Will - what type of will? A mirror Will or a Discretionary Nil Rate Band Trust Will.

    I think we've seen quite enough of the mis-selling of protection policies within banks and insurance companies to see the limited advice models do not work. An estimated £8 billion of payment protection insurance mis-selling for starters.

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  • The problem with simplified advice is that the client has got to have the ability to do the numbers, understand the product and monitor it as he goes along.

    For example a PHI plan. 55% of Income as the starting position. What income, earnings and dividend or simply earnings.

    Do you take indexation or not. Do you take a guaranteed premium plan or reviewable. Escalating with each year or simply on the additional benefit provided.

    What if the clients income falls and is not that covered by the plan.

    Yes simple products may be available but the client is doing a huge diservice to themselves if they do not get advice.

    On the point of mortgage take life cover with CI, what benefits would the spouse receive from work, what benefit would she receive from the State if married with two kids etc.

    Simple advice is never simple and the public deserve better!

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