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.”