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FCA: ‘We don’t want to prevent progress on simplified advice’

The FCA says it does not want to stand in the way of progress when it comes to firms developing simplified advice models targeted at lower value clients.

At a Distribution Technology event in London yesterday, FCA technical specialist Rory Percival took questions about how advisers could develop a simplified advice service which met regulatory requirements.

Advisers said while they wanted to offer a simplified advice model for lower value clients, they had concerns about how to do so compliantly.

Percival said: “In this area in particular we want to understand what the issues are so firms can innovate. We do have rules about what is advice and what is not and we want to make clear what that means in practice. If we are preventing progress we want to unblock that blockage.”

The regulator is currently carrying out a thematic review on non-advised and simplified advice sales. Percival says the FCA will make clear the differences between advised and non-advised sales when it publishes its findings.

He also suggested some firms’ compliance concerns were holding them back from developing advice models unnecessarily.

He said: “There is a tendency in some cases for over-compliance. So that is an area that has cropped up and is a concern of ours. We sometimes see processes which are for processes’ sake. In some cases it seems costs have come from over-compliance.”

Lighthouse chief executive Malcolm Streatfield, also at the event, said advice firms should be able to offer some form of simplified advice with a view to building a full advice relationship later on.

He said there was a risk that if the industry did not find a solution for low-end clients that an “innovative technology firm is going to step into our space and start eating our lunch.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Nick Pilkington 24th April 2014 at 9:09 am

    Unfortunately we do have to have the highest compliance procedures because, regardless of what the FCA may say, the FSCS will have its own rules and unless a case is watertight they may well offer compensation using retrospective views.
    This in turn pushes the cost of advice up resulting in the market gap for advice on low value cases.
    Personally I think simplified (in reality no advice at all) is very dangerous because a client may well buy the wrong product through not understanding all the implications & then they will have no redress when things go wrong.

  2. Well said Nick.

    It’s all very well that the FCA states “We don’t want to get in the way of innovation” and “some firms are over-compliancing (i just made that word up but i like it)” but when push comes to shove and a client complains the FCA does not stand up and say “to be fair, this firm did what we asked them to do”. The FSCS and the FoS operate from a completely different rule book which they wouldn’t hesitate to throw should a firm have decided to innovate and not over-compliance.

    Simplified advice is a non-starter in my opinion. The FCA, FCSC and FoS should all be working together to make compliance simpler and fairer to both clients and firms. Once that happens firms will become more confident in operating at the lower end of the client spectrum without having to jump through all the hoops that they currently do.

  3. And never forget that the differentiation may not come form the FCA but after-the-event in the hands of the FOS which can adjudge that you, the adviser, should have done something different or sought more information, or ‘must have known’ or that ‘it was obviously not suitable for the client at the time’ or whatever, WHATEVER basis of ‘advice’ or non-advice/execution-only arrangement was undertaken.

    Complaints only happen when something goes wrong, cynically I mean usually when investments fail to perform… people don’t complain when the strategies to which they are happy agreeing work as planned or indeed even better. So, generally, beware or acknowledge that you are taking-on this risk in doing the best thing for your client – and avoid the more likely litigious people from your client list so that the only ones to complain are those who better deserve to be compensated from other things which can go wrong from time to time, as we all know.

  4. I agree with the previous posters and when you factor in the view that the FOS take, the regulatory landscape is not joined up sufficiently for firms to be confident going forward.

    It is perhaps worth reflecting that if the rules and regulations in this area were at all clear then this debate would not be required…

  5. Got to say I am disappointed that the FCA has said this as surely they must realise they are the reason for the advice gap along with all the other well meaning legislation and rules. Until we get somebody that stops and looks at the whole picture of FS businesses and regulation it will be a race to the bottom I fear and the demise of face to face advice except for the wealthy or financially savvy. I personally would not risk my small business for the sake of simplified advice. There are too many retrospective ‘if buts and maybe’s’ as well as the FOS and FSCS as already mentioned. With my PI excess standing at £10k and any profit margin being small – this area is a disaster waiting to happen. You only have to look at the fiasco of stakeholder pension and the unfolding mess of AE – and it is easy to see this being the next big mess to blame on us. I personally think the rise of execution only and non advised sales is wrong and not in client interest mostly given some of the poor investment and pension decisions I have seen with clients so far. However I understand why this is happening. Afterall its the’ McDonald’s effect – marketing over substance – and businesses need this mass market approach to make it work.

  6. I love to hear the regulator say things like this as it makes me laugh (and we don get much of that anymore in our business). Maybe their starting point should be to organise the same set of rules that the FCA, FOS and FSCS should all operate from, On one hand they say they want to make things simpler but as we all know when complaints in and the file is requested for ajudication it is only the contents of this whisch are considered. If we dont have “war and peace” in their we dont have a leg to stand on and it is this, over anything else that produces additional cost of compliance. I am in a network who has a very robust system in place to ensure (as far as possible) it is as air tight as it can be to defend complaints. However every now and again we get updates for “additional requirements for suitability letter contents”. Whilst this can be a pain in the ar*e and seem pointless, they always include the reasons for the update. Without fail it is becuase some poor member has had a complaint upheld because “X Y or Z was not covered in the letter” and this gave FOS the crack in the door it needed to hammer the IFA. So an extra paragraph needs inserted to cover this off. That in itself may not be too bad but when you get 4 or 5 of these a year for the last 6 or 7 years, is it any wonder that our business is “Over-Complianced”? It is hi-time the FCA takes responsibility for its actions, admits (even if only privately to itself) that the whole process of rules, regs it sets out needs to be used for the FOS and FSCS too. Then and only then can we have some kind of cohesion to allow us to remove a lot of the crap that now goes into files purely to try to cover our backs for the rest of eternity. Until that time, the whole thing is in a total mess and is a complete joke In my humble view.

  7. There are so many elephants in this room

    From a advisers point of view I wouldn’t know where to start, so best not to enter !!!

  8. brian weatherley 24th April 2014 at 1:31 pm

    First , let the FCA define what is meant by “simplified advice”. To me it suggests it is more complex initially but has been watered down to make it user friendly. But what is “simple advice”; does that mean limited advice but in turn what does that mean. We are talking semantics and it is the responsibility of the regulating body to resolve the issue.

    a. Define Advice and the degree of complexity and applicability

    b. Generate guides which should include the mandatory detail needed to support a specific level of it “simple”, ( one issue only e.g. protection only ) “applied” (more than one issue e.g. protection coupled with retirement income planning ) or advanced( involving complex issues such as estate preservation using trusts.

    Patently, this suggestion would need to be developed but one would ask why has the regulatory body not done so thus far. Perhaps, it reflects a collective lack of experience at the coal face

  9. It seems that yet again the Regulator is getting tied up in the Gordian Knot of definitions.

    Not only do we have the impenetrable differentiation between Independent and Unbiased Whole of Market, we now have the oxymoron of advise that is supposed to be simple.

    ‘Simple’ in our business doesn’t exist, so the sooner the Regulator drops the concept the better – otherwise I can see it ending in tears – unless those providing simple advice to simpletons get immunity from the compensation culture.

  10. Simplified advice is like the proverbial bucket of eels. You cannot pick out just the ones that suit some vague, cuddly concept of compliance-lite advice, rather like the FSA’s idea TCF (Trying to Catch Fog).

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