FSA head of investment policy Peter Smith says the regulator expects firms planning a guided simplified advice proposition to tell the regulator how they are going to avoid inadvertently giving advice.
The FSA’s guidance consultation on simplified advice, published last week, sets out three models which firms can consider to support a simplified advice process.
The first is a wholly automated system with no adviser interaction, the second involves a QCF level four-qualified adviser who gives customers personal recommendations and the third is a system where the client has access to someone who can answer factual questions but cannot give a personal recommendation.
Speaking to Money Marketing, Smith says the third model presents a particular challenge as firms must ensure that consumers do not get advice.
Smith believes it will be easier for firms to manage the risk of inadvertently giving advice through phone-based support, with scripts for the staff providing the service.
He says: “Face-to-face guidance is always the most difficult one because there is human interaction in addition to whatever gets typed in the system. The third option in the face-to-face scenario is clearly the one that is the most difficult for firms to control properly. We would obviously expect firms developing these models to be discussing with us how they are going to manage that particular risk.”
The simplified advice paper stresses firms should consider first if clients have basic protection needs that are not being met, whether clients should pay down debt rather than invest and whether they have access to adequate emergency savings.
Smith says this is a generally accepted “hierarchy of products” which should be considered ahead of retail investments.
He says: “What we are saying is that if people use simplified advice processes, it should not be assumed that jumping to recommending a retail investment product is going to be the right answer for every individual.”
Smith believes there is scope for firms to use simplified advice not only to service some of their existing client bank but also to attract new business.
Any simplified advice systems would operate in addition to the basic advice regime, which covers advice on stakeholder products.
Smith says the regulator did question the industry about extending the basic advice regime to encompass simplified advice but the feedback was that stakeholder products might not be suitable for the market that firms are trying to target with simplified advice. He says: “It is the linkage between basic advice and the stakeholder product suite that people in the industry find problematic. They do not think it is the right product suite for this sort of offering. We did say to lots of people on lots of occasions ’have you thought about doing this through a sort of beefed-up basic advice regime’ and you can see where we have landed.
“The people we have been discussing this with do not think stakeholder products are the right product set for what they are intending to use the simplified advice process for.”
Smith says the FSA has no plans to look at the basic advice regime in the near future.