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FCA fails to address key issues in final simplified advice guidance

The FCA has failed to provide further clarity on key issues including liabilities and the “tipping point” between information and advice in its finalised guidance paper on simplified advice.

The regulator published a guidance consultation in July which aimed to clarify the boundaries of simplified advice. But experts slammed the paper and said it failed to address the barriers preventing firms from developing simplified advice models.

In the finalised guidance, published today, the FCA refuses to address concerns that the way the Financial Ombudsman Service interprets complaints about simplified advice prevents firms entering the market.

The FCA says: “The FOS has explained its approach to dealing with complaints in this area. This makes it clear that the FOS will consider FCA rules and requirements and decide each complaint on the basis of what it believes is fair and reasonable.”

Firms also said in their consultation responses that the paper did not give clarity on liabilities. For instance, advisers wanted confirmation of whether they could be held liable for a customer who uses their simplified advice model, receives a recommendation to purchase a product, but then buys the same product elsewhere on an execution-only basis.

The FCA says: “The question of liability will be dependent on the facts of the given scenario. As a result, it is not possible for us to be more explicit in the finalised guidance.”

The regulator also refused firms’ request to be more specific on the boundaries between information and advice and where the “tipping point” might be.

It says: “This is a difficult area on which to provide more specific guidance because the situation depends very much on the context.”

The regulator has altered its guidance on decision trees after respondents called for further clarification, suggesting that a process which provides a list of suggested products would constitute a personal recommendation.

Its consultation paper stated that a key consideration in deciding whether a personal recommendation is given is if the decision tree process identifies one or more particular retail investments for the customer, rather than providing a list of products meeting the customer’s criteria.

However, the finalised guidance says that for it not to constitute a personal recommendation, the decision tree must avoid making any judgment that would result in a single product or a list of products being identified as suitable for the customer.

The paper also provides further clarity on model investment portfolios, stating that when rebalancing a portfolio, firms must be aware of their obligations to ensure any decision to trade is suitable for the customer.

FCA director of policy David Geale says: “A healthy advice market is one in which a range of different models exist and develop to suit the needs of a broad spectrum of investors.

“We believe that this guidance will give firms the confidence to innovate to provide new, streamlined advisory propositions with a clearer understanding of their responsibilities and of where the boundaries lie.

“Importantly, we received a significant number of responses to our consultation. We have taken on board that feedback and the guidance today is stronger, and clearer, as a result.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Now there’s a surprise.

  2. Exactly, PM ~ told you so.

    One might reasonably have expected the FCA to have at least explored (and maybe even discussed with various trade bodies) the workability of a framework based on four central pillars, namely Proposition, Costs, Risks & Tax with perhaps a brief summary as to suitability. That’s all that the vast majority of consumers want, after all ~ isn’t it? It’s certainly all that the vast majority of my clients want and I have no reason to suspect that my client bank is any different from those of anyone else.

    But the bottom line is that they just CANNOT bring themselves to do it, as it would trigger a headlong rush away from 100 page suitability reports and render redundant a very large proportion of its RDR.

    It’s all just talk and ultimately no sound new framework within which intermediaries might feel safe to operate.

  3. I’ve just read the FG documents (well, as far as anyone can read 47 pages of tedious FCA speak). It basically takes 47 pages to re-state the current position and tell everyone that made the effort to reply to its consultation that their fears are unfounded.

    Deeply unhelpful.

    Correct me if I’m wrong but as far as I could see nothing has changed.

    Kind of what I expected.

  4. I think we all know that if the FOS is faced with a customer who believes that they were given advice, and is properly schooled to say the right things, the decision will be against the advisory firm.

    There is clearly a market for a less onerous process to encourage more take up of financial products, with a definitive set of rules which protect the supplier if they fully comply, and makes clear to the consumer that there is no right of redress if they choose the non advised route. That should extend to then buying the product elsewhere, which has always been a bone of contention when an adviser finds out that they are liable for advice they have not been paid for.

    The issue regarding rebalancing of model portfolios is laughable, the whole point of choosing this investment model is to let the investment managers make the decisions on a collective basis, rather than client by client, everyone gets the same portfolio. As switches of collectives are usually on clean pricing, there is only one reason to trade and that is to protect the clients against portfolio drift as the risk profile could increase, or reduce.

    The FCA are consistent in their guidance though, damned if you do, damned if you don’t.

  5. How long before the government works out that the FCA is pushing in the opposite direction to their Freedom & Choice agenda? That guidance guarantee service is looking even more difficult to deliver after this latest anachronism.

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