The final rules for the basic advice regime were published last week but what changes have been made since the FSA first put forward its controversial proposals and asked the industry for opinions?Aifa is not sure that much progress has been made and director of policy Fay Godd-ard is not impressed: “The key points have not changed much,” she says. “We did not like the original proposals and, as these have hardly changed, we have no more reason to like them.”
One significant bone of contention with the basic advice regime is the lack of a prescribed script or common training for advisers.
LIA head of public affairs John Ellis says: “The FSA still has not dealt with some issues. Training and competence needs to have some commonality and there really should be some prescription.”
Aifa has also voiced concerns, claiming that if basic advice is to be delivered by unqualified advisers it would be safer to have a uniform prescribed FSA script, as without it there will be a lack of consistency across the industry.
Goddard says the FSA requires that firms should ensure that their scripts are “at least as effective as FSA’s in eliminating consumer detriment”, which she describes as “a tall order”.
Other respondents to the FSA’s consultation say the use of prescribed scripts would protect firms against retrospective action, reduce risks from rogue firms creating deficient scripts and pushing the boundaries, as well as lowering development costs for smaller firms. However, despite this, the FSA says firms themselves are best placed to design scripts appropriate to their own business level, underlining that firms will be responsible for the basic advice provided by their salespeople. It also says it expects software providers to offer off-the-shelf solutions for smaller distributors, which it hopes will help reduce development costs.
Responses to the consultation showed great support for the development of an industrywide benchmark of competence, with some respondents favouring a mandatory basic-level qualification and others advocating a minimum set of training standards offering guidance on the key areas of competence for advisers.
Aifa says if advisers do not understand the key features of stakeholder products and their purpose, it can envisage consumers being sold products which are neither suitable nor desirable.
But the FSA is adamant that it will be more effective to place responsibility for the competence of basic advisers on individual firms, thus allowing them to take account of the other aspects of the sales process they design and their overall business model.
The regulator is keen for the industry to develop some guidance for best practice, saying: “We welcome the industry’s early initiatives in relation to developing a code of practice.” But Aifa believes that placing total responsibility on firms will lead to lack of take-up by IFAs.
Goddard says: “It is very difficult to see how this will work in practice or how it will be of benefit to the IFA community. I think it is extremely unlikely that many IFAs will provide the service.”
Informed Choice managing director Nick Bamford believes that post depolarisation, a small part of the IFA market might decide to make the move to a more simplistic environment, be this multi-tie or basic advice, in which they deliver a product solution to an identified need.
But he warns: “This is a classically dangerous area to get involved in – in trying to simplify advice to such an extent it is easy to get it wrong through oversimplification.”
Bamford predicts that basic advice will only be of use to consumers who want nothing more than to invest £50 a month as a nest egg.
Another area which has aroused considerable concern is the very low take-up of pensions shown by consumer research undertaken by the FSA as part of its stuidy into how basic advice might work.
In the final rules the FSA addressed previous concerns about the dangers of selling stakeholder pensions to people who had access to an occupational pension scheme, and the proportion of consumers who bought pensions despite having high levels of debt.
The regulator has improved the script guidelines so firms cannot sell a stakeholder pension to someone with access to an occupational scheme. This has resulted in an even lower take-up of pensions in the FSA’s consumer research.
Royal London head of corporate affairs Gareth Evans says: “I think there may be problems down the line for pensions, as the FSA’s research suggests that very few pensions will be sold. Based on a random selection of`consumers, it would be possible to discard some for high levels of debt but, on average, I would expect more people to come down on the side of buying a pension than the basic advice regime would seem to sell to.”
Evans believes this discrepancy raises fundamental questions about the overall suitability of the basic advice regime.
He is also concerned about the possibility of products outside the stakeholder suite being included in the basic advice regime, which the FSA has mooted as a possibility should the system work for stakeholder.
The overall consensus from the industry seems to be a relatively unwilling acceptance that despite everything, basic advice is here to stay.
Evans says: “As long as basic advice is ringfenced in with stakeholder products it may be a reasonable success, but it is not a substitute for proper advice. The FSA seems to be going for a onesize-fits-all process, and one size does not fit everyone. Basic advice may be better than no advice, but it is certainly not better than what we have already.”
Bamford does not hold out high hopes for the basic advice regime having an impact on the market. “Most people’s lives are too complicated for this to work for them,” he says.
The most negative view comes from Aifa, which says the regime is fit for little else than the sale of cash Isas and possibly advising on group stakeholder pensions in the workplace.