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.”