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FSA: Simplified advice must consider protection needs before investments

The FSA says firms offering simplified advice should not recommend a retail investment product if the client does not have sufficient protection in place.

According to the regulator’s simplified advice guidance, published today, firms should first consider whether clients have any basic protection needs which are not being met.

The FSA says: “It should not recommend a retain investment product if it would be in the client’s best interests to use this money to buy insurance cover instead.”

The regulator says in order to comply with suitability rules, firms should understand the type and level of clients’ debt and should not recommend a retail investment product if a client would be better advised to repay their debt rather than investing.

It adds that firms should not recommend a retail investment product unless they have reason for believing that the client has adequate savings to access in an emergency.

The FSA says: “Firms should not rely solely on a client’s judgement as to whether they are able to cope with their existing level of debt or the adequacy of their savings. If a client has debt that they should repay or insufficient emergency savings, they should exit from the process and be referred on as appropriate.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Someone decides they simply want advice as to whether to enter their employer’s new “NEST” scheme that their employer has been FORCED to provide them and cannot encourage the employee to opt out in favour of enhanced salary.
    The consumer has other credit card borrowing at 28% per annum. What is the simple advice about opting out to be for this “simple” product in view of the FSA’s suitability rules and the fact they say “protection” shoudl eb covered before investment and savings?

  2. A client asks me about investment advice as he wants to build up savings. Advise him before savings he should have some life cover. twenty five years later because he aint dead he complains that he has not got any savings and he should have had savings instead of life cover. OOPs the IFA gets stuffed again. Remember no “Long Stop” available

  3. Simplified advice process identifies client doesn’t have enough protection…. process according to FSA then states advice is NOT to enter NEST, forego the employer’s 3% and make sure they have teh correct level of protection?
    You cannot prioritise without giving full advice.
    Or will the FSA say we must reccomend they enter their NEST, but risk they family having NO protection?
    I don’t think simplified advice will work if the FSA dictate priorities.

  4. One wonders if using spare cash to pay off a mortgage earlier would be a more suitable and simple piece of advice than investing a retail investment product for the majority of people in the simple advice target market? Sadly it won’t generate the commission of a protection/stakeholder sale nor be worthy of an investment advice fee.

  5. re terry @ 1.23
    Whatsmore the FSCS will uphold his complaint!

  6. This piece of legislation has FAILURE written all over it.
    The comments regarding NEST are bang on and where will it end…………… a recommendation for investing in any equities on a lump sum or regular premium basis apart from NEST whilst having any debt(including a mortgage) is an upheld complaint waiting to happen!
    And what level of Life cover, IPP, CIC etc is deemed appropiate prior to a client saving in equities………….complaint upheld!

  7. Complification strikes again – why should we be so surprised ? Whenever a committee ( in this case an ivory tower commitee tries to design a horse it produces a camel.

    Who are we, the FSA , the treasury, the governmment to tell the consumer what to do unless it is the law. In which case will any MP’s or civil servants reading this please organise the legislation

    Some people just do not believe in protection. But do want to do what they choose as their life priorities,. all the financial planners or consumerists or regualtors in the world cannot change that – so perhaps we could advise them instead to emigrate to somewhere where they can make their own decisions about their own lives

    If the FSA wants a description of simple advise I can giev them one – on less than one side of A4. I did not invent it but have been doing it alonside others of you out there since 1990 – or perhaps earlier or later in your cases.

    It confuseed FIMBRA who eventually accepted it and since their is no legacy knowledge in this great regulatory world it then confused the PIA who eventually acceptd it then came the FSA who now seem to want to complicate it.

    And if there is an FSA reader of this i would be delighted to be consulted on the subject – for a fee of course – the work will of course be extremely compicated

  8. Only the FSA could make simplified advice complicated. This idea is doomed and yet without a simple simplified advice process what will happen to the vast majority who will not be advised at all ?

  9. Nanny State AGAIN!!!

    If I don’t want advice on protection, but do want advice on savings, why should a simpleton (sorry simplified) advisor have to follow this stupid idea?

  10. “Orwellian” is usually an overused word but the FSA are doing their best to make it otherwise.

    “Protection has always been a higher need than pension saving. Mr O’Seanah must be told to buy protection. No, Mr O’Seanah must have his earnings forcibly diverted into a pension fund. Pension saving has always been a higher need than protection. To say that protection is a higher need than pension saving is thoughtcrime. Mr O’Seanah’s credit card lender is an unperson.” Etc.

  11. I have no intention of trying to offer simplified advice. Protection product providers will be allowed only to pay non-indemnity commission (which we take already but, on its own, it’s a money loser). We’re seeing an increasing number of protection policies being cancelled early on anyway, once the clients find out that they can get what you’ve recommended for a couple of quid less, either online or via one of the big supermarkets. If protection has to be the first port of call over everything else, then it just won’t be worth the effort. Our proposition, Mr Prospect, is full advice. If you’re unwilling to pay for that, then I’m sorry but we cannot help. So clients will buy purely on price. They probably won’t buy what they should have, e.g. a joint life policy for family protection, and they almost certainly won’t bother about putting anything in trust. All they’ll end up with is something that’s a bit better than nothing.

    But hey, ho ~ the FSA knows best. Never mind the Law of Unintended Consequences.

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