Last week’s guidance consultation on simplified advice from the FSA can be read as a 27-page rejection of industry arguments for a relaxation of its rules.
Banks and some insurers have been pushing the regulator to water down the current RDR requirements, including QCF level four qualifications, continued professional development and adviser-charging rules, for simplified advice.
However, the guidance consultation shows the regulator is in no mood to offer concessions.
The guidance confirmed that firms operating a simplified advice proposition can either look to offer a fully automated system developed by someone with appropriate qualifications, have a competent and fully qualified adviser to help clients through the process or offer clients access to someone who can answer client questions in a factual manner without offering a personal recommendation, and therefore not offering regulated advice.
The regulator warns the third model presents a particular challenge to firms in ensuring staff do not give advice.
Before offering an investment product, firms giving simplified advice will have to consider a hierarchy of needs including whether a client has had their basic protection needs met and levels of indebtedness.
For the big firms examining ways to offer a profitable proposition while also taking into account Financial Ombudsman Service rules, the guidance did not offer the leeway they were hoping for. It was hardly a surprise the FSA offered such little flexibility. As the RDR has progressed, the regulator’s view that a separate regime for simplified advice was not needed has grown stronger.
Proponents of more relaxed simplified advice claim it is needed to plug an advice gap that will get bigger with the RDR. The FSA has consistently asked why they cannot use the current basic advice regime. Answering that they cannot make enough money from basic products is not good enough for it.
A relaxation of rules on personal advice recommendations may well have undermined full advice propositions and created a competitive disadvantage for IFA firms. It would also have been very hard to justify any attempt to mess with FOS jurisdiction or lower consumer protection.
Our biggest concern, and perhaps that of the FSA, is a simplified regime would have been used by big financial institutions as a way of circumventing the increase in standards required of the RDR to boost their profits without tangible benefits to the consumer.