Last month, the FCA published its latest Financial Advice Market Review instalment, entitled Finalised Guidance FG17/8: Streamlined advice and consolidated guidance.
I was looking forward to reading this one, as I have always regarded the compliant provision of “streamlined advice” a bit of a holy grail. It is what clients who do not want or cannot afford a full traditional advice process need, and it allows firms to develop models other than that profitably.
The missing piece of the jigsaw has been firms’ confidence in being able to do this in a manner that manages their risk adequately. More specifically, firms have always feared being judged retrospectively and to the standards of a full advice process when providing streamlined advice.
So, does FG17/8 go any way to providing this missing piece of the jigsaw?
The first point to note is that this is guidance. As such, it does not change the rules that apply to firms but it does indicate how those rules may be satisfied in certain situations. So, while the guidance is not “binding” (i.e. firms cannot attempt to follow it to the letter and know they have eliminated all risk), it is very helpful to those looking to provide streamlined advice.
The following are some practical points that can be taken from it:
- A streamlined advice service will not be able to produce a suitable personal recommendation for everyone. Firms must be prepared to “kick out” clients from the process where this is, or should be, obvious.
- Often this will be done by way of filtering questions. Two very practical examples given when talking about streamlined advice for making regular non-pension investments are whether the customer has significant unsecured debt and has sufficient liquid cash available for emergencies. If the customer does not meet those criteria, they should be very clearly warned that the service is not suitable for them and should probably not be allowed to continue.
- This leads on to another point: you cannot completely disclose and warn away the duty to make a suitable personal recommendation. I have seen many firms over the years try to defend what appears to be unsuitable advice by pointing out the risks that were disclosed to the client. The FCA is pretty clear that if the service appears unsuitable then no recommendation should be made, regardless of disclosure and warnings.
- Having a clearly defined target market for the service at the outset is really important. If you do not have a good idea of the type of client your service is likely to be suitable for at the start, how can you reasonably filter out those for whom it will not be suitable? It will be important to record the process of identifying your target market clearly, and the design of the service should be consistent with that. No streamlined service will be even potentially suitable for everyone.
- It is stating the obvious but firms should be clear to the client whether they are making a personal recommendation or not, and that they, the firm, are responsible for the suitability of that recommendation, rather than implying the client is somehow “self-assessing” suitability. The firm will be held responsible for the personal recommendation in any event, so may as well be clear about this.
- While the advice rules do not change for streamlined advice, the FCA is clear that providing the client knows what service they are and are not getting, firms should safely be able to collect more limited information upon which they can base their streamlined advice and still be compliant. There is also useful guidance on relying on previously collected information and how to make sure the client knows a firm is doing that, and the importance of telling the firm if anything has changed.
Overall, FG17/8 provides a welcome addition to the resources available to firms looking to provide streamlined advice. It is so practical and clear in places that it will be a useful read for any advice firm, regardless of the scope of their service and their chosen delivery channel.
It should certainly encourage firms to dip their toe in the water, and its usefulness should not be limited to those looking to utilise online delivery solutions. It will also be useful to firms looking to design streamlined services with more personal interaction.
The true test will be in several years, to see whether the advice gap has narrowed. If it does so, it is likely to only be by the provision of streamlined advice, as a full advice process does not look like something becoming more accessible to the masses any time soon.
Alan Hughes is partner at Foot Anstey