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FCA simplified advice guidance a ‘missed opportunity’

The FCA’s finalised guidance paper on simplified advice is a “missed opportunity” and will do little to help firms looking to develop new advice propositions, say industry experts.

The regulator published a guidance consultation in July which aimed to clarify the boundaries of simplified advice. But experts slammed the paper, saying it “solved nothing”.

In the finalised guidance, published last week, the FCA failed to address concerns about the way the Financial Ombudsman Service interprets complaints about simplified advice.

It also refused firms’ calls for greater clarification on liabilities, as well as the boundaries between information and advice, and where the “tipping point” is between the two.

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.

“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 paper sets out the FCA’s definition of a personal recommendation as: a recommendation made to a person in their capacity as an investor or potential investor, which is presented as suitable for the person to whom it is made or based on the investor’s circumstances, and which relates to taking certain steps in respect of a particular investment.

However, it says while giving information does not generally constitute regulated advice, the circumstances in which information is provided can make it advice.

Apfa director general Chris Hannant says: “There is a tension between the objective definition of a personal recommendation, and this subjective element about the way in which information is presented. That for me is where everything gets blurred and that has not changed.

“It is useful to have all the rules in one place but I am disappointed the FCA has not gone further. The issue of the FOS still looms and I do not think this is a game changer for firms which want to develop new models.”

Pinsent Masons legal director Tobin Ashby says: “This feels like a missed opportunity and I would have hoped for something more a bit more innovative from the regulator which launched Project Innovate.

“Firms have said they would find it very difficult to work out the extent of their liabilities and responsibilities for simplified advice, and it is hard to see how they are any further forward from when the FCA started this piece of work.”

The FCA has made minor amendments to its guidance on decision trees and model portfolios after calls for further clarity.

On decision trees, it says a process which provides a list of suggested products identified as being suitable for the customer would constitute a personal recommendation.

In its consultation paper, however, it suggested that a list of products would not constitute a personal recommendation.

And the FCA says when rebalancing a model investment portfolio, firms must be aware of their obligations to ensure any decision to trade is suitable for the customer.

RPC partner Robbie Constance says: “The FCA is trying to encourage people to create process-driven, technology-based, decision tree-type approaches to fill the post-RDR advice gap, but this just reveals the risk firms have to take that what they are doing may amount to a personal recommendation requiring ‘full suitability’.”

The Association of British Insurers warns the lack of clarity in the guidance will prevent firms developing simplified advice models to support the Government’s pension reforms being introduced in April.

An ABI spokeswoman says: “Our members are working flat out to meet the April deadline to ensure that the pension reforms can be implemented successfully, but the retail investment advice regime is currently a barrier. Following this final guidance, there are still issues that need to be resolved.”

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Adviser view

Mel Kenny, IFA, Radcliffe & Newlands

Advisers are looking for clarity from the regulator, and when things are open to interpretation there is always a fear of retrospective action which will prevent firms from developing new models.


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