It was supposed to be the green light for advice firms to launch simplified advice models and close the advice gap.
But the FCA’s long-awaited guidance consultation on simplified advice, published last week, has been roundly rubbished by experts as doing very little to advance the barriers to progress.
As independent compliance consultant Adam Samuel put it: “It adds nothing, it solves nothing.”
Last month FCA chief executive Martin Wheatley said advisers had been “sitting on their hands” since the RDR rather than innovating to close the advice gap, and promised the guidance consultation would give “greater clarity to firms” on the expectations for simplified or limited advice.
The paper was very good at setting out the problems.
Its thematic review on simplified advice and non-advised sales found the following factors are holding firms back from developing simplified advice models:
- Uncertainty on the suitability standards for delivering personal recommendations online, particularly the ‘breadth’ of suitability requirements for focused advice
- Concerns that automated advice processes could risk systemic misselling
- Concerns that if they deliver online personal recommendations on a contingent charging basis, firms could be held liable if customers carry out the transaction on an execution-only basis elsewhere
- Concerns over how the Financial Ombudsman Service will treat complaints about simplified advice, which firms say would still hold them back even if the above three points were addressed.
This is an accurate and concise summary of the issues holding advisers back – so far, so good.
But the paper fails to give a satisfactory solution to these problems.
Firstly, it says while suitability requirements apply to all personal recommendations, this is “flexible” and the information a firm must obtain will vary from case to case.
So although the regulator acknowledges suitability requirements are not as stringent for simplified advice as for full advice, it gives almost no detail on what that means in practice.
On automated processes and misselling fears, the FCA clarifies that simplified advice provided through an automated system must be designed by a fully qualified adviser. But short of that, the paper offers no other clarification or solution.
On the third point, the FCA does provide a solution, stating that as long as a firm’s systems and processes are compliant, it could rely on the defence of causation and remoteness of loss if a claim is brought by the customer who executes the transaction elsewhere.
But on concerns about the FOS, which Apfa director general Chris Hannant says is the biggest barrier to simplified advice, the paper is more or less silent.
It simply quotes from the FOS website which says it already judges the appropriateness of simplified or basic advice “in the context in which it was given”.
Given the hostile response from advisers to FOS interim chief executive Tony Boorman’s recent claim he is “mystified” by concerns over simplified advice, this will do nothing to alleviate advisers’ fears that FOS will hold them to a different standard than it claims.
If Wheatley wants firms to stop “sitting on their hands”, then one out of four solutions is not good enough.
Tessa Norman is regulation reporter at Money Marketing