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FSA: We have done all we can on advice affordability

FSA head of investment policy Peter Smith says the regulator has done as much as possible to minimise the number of people who cannot afford to pay for advice.

The FSA published its final guidance on simplified advice last month following a consultation in September. It confirms simplified advice will be subject to the same regulatory requirements as full advice.

In the final guidance, the FSA says it is not convinced the RDR will mean many consumers who want and need advice will not be able to access it.

Speaking to Money Marketing, Smith said consumers that spurn advice are likely to fall into two groups.

He said: “There are those people who will see the cost of advice and do not want to pay it. That is a conscious choice. We have said throughout this process it is for the advisory community in its broadest sense to demonstrate the value of the proposition so that it is worth people paying for it when the cost is explicit. Then there may be some at the margin who cannot pay for advice and for whom the economics do not work.”

But Smith argued that the FSA has tried to help people who want advice to pay for it, such as allowing payments to be taken from the product as part of regular contributions. He said: “We have done what we can to provide as many routes as possible to minimise the number of people who fall into the category of not being able to afford advice.”

It had been hoped that simplified advice could provide lower-income and middle-income earners with some form of financial advice after the RDR.

But since the consultation last September, industry commentators have warned that if simplified advice carries the same liability and advisers have to meet the same qualification and adviser-charging rules as they do for full advice, there will be no incentive to provide the service as margins will be so small.

Smith said the Financial Ombudsman Service has provided as much clarity as it can on how it will look to adjudicate on simplified advice complaints. The FOS has said it will judge any simplified advice complaints in the context in which the advice was given.

It would not expect a full fact-find but would review the questions asked of the consumer and the options open to them.

On the issue of suitability, Smith said a firm’s obligation to provide suitable advice should not change purely because it is considering a simpler situation.

Ahead of the publication of the final guidance, Aviva UK Life chief executive David Barral told Money Marketing the firm has no plans to offer simplified advice. Aviva had previously urged the FSA to develop simplified advice and had piloted a simplified advice system.

Asked to respond to Aviva’s withdrawal of simplified advice amid suggestions the final guidance has rendered simplified advice unworkable, Smith said: “Providers have said they want a market for simplified advice and have asked us for clarification on the regulatory framework. We have provided that clarification. But from day one, it has always been a question as to whether firms think they can develop a model that is viable in this area or not. We have always been very clear on that. It is not for us to develop a model, it is for us to set the rules of the game.”

He said individual providers will decide whether they want to offer simplified advice based not just on what the FSA has published but also on the general financial health of the firm and how much it is investing in new ways of doing business.

Smith added: “We have created a framework that will mean those people who do wish to deliver a service can do so. I do not know as of today how many people will do so.”


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There are 31 comments at the moment, we would love to hear your opinion too.

  1. Advice for all might well be more affordable if the overheads for advisers weren’t so high. One way in which those overheads could be reduced is if the FSA were to do its job properly and avert the succession of motorway pile-ups seen in recent times that have resulted in an unprecedented succession of levies from the FSCS, in no small measure due to the FSA decreeing so many provider failures to be the responsibility of the intermediary sector.

    Plus, of course, it’d hardly be a major challenge to reduce the FSA’s own budget by something like a third. Relocate 4/5ths of its staff outside London, cut out that £25m bonus pot, cut the stationery budget from £1m to £200,000, cut out the all-expenses-paid first class overseas jollies for senior personnel, slash the sums blown on costly objets d’art, cut the £567,000 hospitality budget by three quarters, outlaw hindsight reviews and thus the endlessly escalating costs of PI insurance. The list of big savings is a long one, yet what have we seen this year? An increase to the FSA’s overall operating budget of 16%.

    So for Peter Smith to claim that the FSA has done what it can to make advice more affordable is, at the very least, disingenuous.

  2. as ever 10/10 Julian.

    of course they could also allow the cost of advice to be funded from the cost of the product over time instead of destroying the market for regular contribution savings…

  3. The FSA are really out of touch with what the public really want. After starting in Home Service and seeing the demise of that and the lack of Financial advice being provided to the type of customer who benefited from such service, this is just another nail in the coffin. As ever in our society the rich get richer & the poor will get poorer. Ultimately the FSA has to get its own house in order because costs to advisers are rsing dramtically and that has to be rfelcted in any cost of advice and thus making good qualtiy advice too costly for people at the bottom end of the market. The FSA should be held more accountable for its finance and spending!

  4. As with all the FSA functionaries, this guy spouts the same old rubbish his colleagues do, the purpose of RDR was originally expressed as being to produce better consumer outcomes.

    Sadly that will no long happen, any organisation that can increase its spending in such economically challenging times by 16% and not be scrutinised or criticised by Parliament is of no use to our industry, as Julian points out above, the costs of regulation need to be slashed to the bone, no use paying for a service which can only demonstrate a succession of failures in its core tasks and then allowing such an organisation to be succeeded by another equally top heavy regulator (FCA) which has no incentive to keep its expenditure under control.

    The lack of foresight of these nut jobs defies description, if they had to run a business they would be busted and out of business within weeks as the costs to their customers (US) would not be economical and if we had a choice of whether to pay for this inept and bungling organisation or place our business elsewhere, most of the firms currently authorised would leave them.

    AND PULEEZE, do not mention passporting to the EU, an equally dictatorial and costly system of regulation which has proved as inept and inadequate as our current one.

    The failure to establish a fair and equitable FSCS levy system will eventually send many more smaller IFAs to the wall.

    What the heck was so wrong with the IFA model that these idiots consciously chose to ruin it.?

    Beats me!

  5. More rubbish from the failed FSA. It’s now a perfect time to rethink or postpone RDR, blame Sants for thie debacle and start listening to how to do things by listening to the adviser community.

  6. I read that article and for a moment there thought it was the 1st of April.

  7. Thank goodness for the MAS. Free and independent advice for all, whether they can afford to pay or not.

  8. So according to Smith: consumers will have a choice..If you can afford to pay for full advice then fine: if you can’t then don’t ask for advice: go out and earn more money so that you can pay for full advice: PERIOD

  9. The unintentional humour in these statements cannot make up for the despair that most advisers must feel that the total lack of capability displayed by those who regulate us.

  10. Maybe all in Canary Wharf love meerkats, buy their motor insurance on-line, and trust their bank to give them impartial investment and loan advice. As they complain about their ability to recruit staff with sufficient skills, and retain those who they skilled up, perhaps they have given up trying to provide consumer protection as they do not understand the concept, have guaranteed jobs, and the only new defined contribution pension scheme in the UK.

  11. Not wishing to get up close and personal here but ?

    Is Peter red faced due to the embarrassment of him keep making these stupid ill thought comments, OR is his heart just about to explode after another 10 hour meeting on how to destroy our profession cosuming endless packets of hobnobs and cans of coke.

  12. So Smith like most of the regulators side steps the issues and problems they have caused and blames everyone else. Why does Parliaments allow this to happen beggars belief but not entirely surprising.

    However the one thing I do know is that the small IFA’S are survivers by nature and will adapt. We always do. The real losers here are the consumer and the nation as a whole as savings & protection rates continue to fall. Give it a few years and the FCA will announce RDR being a complete failure.

    After 20 odds years in this industry I have seen this merry go round too many times. The more things change……. well you know the rest!

  13. If this were a Government minister making such inane and stupid comments you would hope they would be out of a job in 24 hours. But this is a “head” (with a smug smile) of the FSA, so perfectly OK and promotion on its way.

  14. we are global leaders in financial services……. congratulations RDR will destroy overnight our fantastic world leading advice industry, good luck to the common people and the poor you are going to need it……………. £1000 plus vat wonger dot com

  15. Used to have a word for people like this – liar. This coming from an organisation that vastly underestimated the cost of the RDR, failed to fully assess the impact of the RDR on existing consumers, ignored cost of TCF (note new round of assessments starting), FSCS levies, FSA costs rising at 15%, increased regulation, rising PII, falling IFA numbers, capital adequacy, adviser charging.

  16. There are only two ways to reduce the number of people who cannot afford to pay for advice Mr Smith.
    1) Reduce the cost of that advice, buy reducing the costs of the providers of that advice.
    2) Increase the income of those who wish to purchase that advice.

    The FSA has continually increased the projected costs to the industry of providing said advice and has no way of positively influencing the incomes of those who would purchase advice. Mr Smith’s comments are therefore so much hot air. Worryingly most ‘heads’ at the regulator believe that their knowledge of the industry is infallible and that therefore they are always right. Their final defence when confronted with logic or proof that they are indeed wrong is to blame others or just to say ‘well we only make the rules how you build a business model around those rules is up to you’.

  17. How can you ‘set the rules of the game’ without having a grasp of the framework under which those rules can become workable?

    You wouldn’t manufacture a bicycle with square wheels and tell the public to figure out for themselves how they can ride it!

    Yet, there we have it, RDR…A bicycle with square wheels!!

  18. When is simplified not simplified – when its used by the FSA!

  19. The problem with treating yourself with poison rather than getting the Dr to give you the right dose, is you don’t know you’ve got it wrong until after you’ve taken the medicine.
    Very similar to advice, you have to get the advice FIRST, if someone is too confident in their own knolwdge to pay for it, why should we spend time trying to change their minds?
    Our time is better spent with people willing and able to pay who already value our service than spending time and money prospecting for more.

  20. All glory to the Hypno-Toad.

  21. Some of the statements that come out of the FSA these days prove without doubt these people are totally out of touch and have no concept of the real world, or any understanding of where their RDR vision is taking us. We have been holed below the water line but the captain is asking for more speed so we can sink quicker. When the regulator says; they have done what they can to provide as many routes as possible to minimise the number of people who fall into the category of not being able to afford advice.”
    “It had been hoped that simplified advice could provide lower-income and middle-income earners with some form of financial advice after the RDR.”

    That last sentence more-or-less confirms they actually have no confidence the simplified advice route will work because they know there is no distinction between the two routes and advisers are damned if they do and damned if they don’t.

    How much is this guy on a year because whatever he’s on it’s too much?

    Will someone in responsibility please sort this mess out.

  22. The FSA aparachik photograhed, puts me in mind of a Client’s cat that I met for the first time last week.
    ‘Overindulged’, complacent and distinctly on the dopey side.
    Where they differ, is the fact that the cat kept mum and didn’t spout drivel.
    Isn’t it lovely to be back (sic) after a 4 day break, free from this cascade of self satisfied pontification.

  23. 90 Life companies have closed to uk business in the UK over the past 15 years.
    When the Advice channel that supports the remainder reduces by 30 to 40% post RDR there will be even ferwer left.
    The only time reality will come home to the FSA is when the never ending flow of fees/levies/fines etc etc starts to reduce significantly from the industry that they are systematicaly destroying. Only when the money stops will it focus THEIR attention as it will effect THEM

  24. I have also done all I can!
    I also have have decided I won’t be paying ANY more so I wont be authorised for Investments and pensions from 2013.
    I will also no longer be responsible for paying FSCS as I have done all I can.

  25. Larry in London 10th April 2012 at 4:01 pm

    Take a look at Smith. About 100 Quarter Pounders too many, I’d say.

    So if he can’t even regulate the amount of food going into his gob, I doubt his abilities in regulating other things.

  26. Dear Peter

    You say “you have done all you can” and “you have tried to help people” ?

    So what you are really saying is you have FAILED !!!

    All I can say is well done its time for you to do a spot of gardening and join you buddies at PWC or KPMG.

  27. Terence P.O'Halloran 10th April 2012 at 4:44 pm

    What are John Smith’s qualifications? Who knows?
    Has this man ever sat across a kitchen table and talked insurance planning; financial planning, any planning? I can almost declare a universal NO!
    Stockbroker? Banker? Lawyer ? accountant? If he was qualified in any of those disciplines would it equip him for his job? NO! However I would lay odds that even those professional status examinations have eluded our man Mr Smith.
    The FSA representative (and manager) is quoted from the article: He said: “We have done what we can to provide as many routes as possible to minimize the number of people who fall into the category of not being able to afford advice.”
    Mr Smith and his colleagues are to be congratulated on minimizing the number of people who fall into the category of not being able to afford advice to 95% of the population. (loud cheering) What an achievement. And all with no relevant experience or qualifications of any substance.
    And immune from complaint.

  28. Is the issue here not a continued persistence with the view that advice doesn’t really exist at all, simply the selling of products?

    Hence the selling of a simplified product has to meet the same rules as the sale of a more complex [sic] product because they are just viewed as sales of products.

    Until advice itself is deemed to be the product and a clear differential created between sales and advice, this view will endure. The real trick missed here was an officially, unaccounted for dumping of this distinction after RDR Mk 1.

    One can only assume this was following significant lobbying from product producer-distributors who would have to come clean over disclosure. If you want advice, see an IFA. If it’s being sold a product [and I have no beef here re commission] then your bank or SJP will sort you out!

  29. And as for Peter Smith’s choice of a green shirt with a purple tie………..he’ll hardly be in line for any awards for his sartorial elegance.

  30. Let us not forget that Peter Smith’s considered response to the question, “what if the RDR doesn’t work”? was to say, “We’ll have to think of something else”.

    Well, Peter, you’d better start thinking. If I was you I’d be thinking of a comfy bolt-hole in some large accountancy firm.

    In what industry, other than regulation, is the price of failure a fat pay-off and a cosy tenure with a large private firm?

  31. One thing the FSA could have done was scrap RDR, but didn’t for fear of losing face – a supreme arrogance as it has no face to lose.

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