The Treasury consultation on the definition of advice landed on our desks last week. The intention is to bring the meaning of the term “financial advice” in line with the European Union regulation outlined in Mifid.
Interestingly, that very same day, I read how Lord Howard Flight believes EU pensions legislation will “fall away” when Brexit materialises, with areas such as guaranteed minimum pension equalisation and funding of defined benefit schemes to buyout level not coming to fruition.
We all know that Brexit will cause chaos as legislators clamour to keep the best of Europe and remove the more difficult or onerous rules. But I will happily align with Mifid to get a tighter definition of what constitutes regulated financial advice. After all, the current status disclosure titles have proven to cause significant confusion.
The Financial Advice Market Review did little to clarify the difference between guidance and regulated advice earlier this year, resulting in many organisations continuing to misuse the latter term (including the guidance-providing Money Advice Service). Much of the public think they are getting regulated advice when they are not.
We have not seen the expected rush to utilise technology to provide automated guidance to the millions of people not adviser charging tolerant. Indeed, I understand the FCA’s “regulatory sandbox”, which allows firms to test robo-advice offerings without the fear of regulatory reprisal, has less than a hand full of users.
What I am hearing from providers is that many are reluctant to commit to large technology and marketing spends until the rules on advice versus guidance are clearer.
It is a huge step to try to market products business-to-consumer instead of business-to-business when many of our industry’s big brand providers market pension products, for example, through advisers and affinity groups. It is a very difficult proposition indeed to market pensions to the man or woman on the street with no previous contact.
I once worked with PensionStore, which spent millions of pounds on “above the line” adverting and had a great proposition but sold very few pension products. The old adage “financial products must be sold and not bought” remains true today, evidenced by the rise in adviser numbers.
Introducing the Mifid definition of advice will benefit advisers hugely. There will also be more firms that offer guidance only that will not need FCA regulation. Business life is so much easier without regulation. What is more, the change would make Financial Ombudsman Service decisions easier to make and Financial Services Compensation Scheme pay-outs easier to award.
More certainty on the matter will also help both established providers and new entrants be able to roll-out app and web-based planning tools to assist those not able or willing to pay adviser charges. So let’s hope the definition changes.
Kim North is managing director at Technology & Technical