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Nic Cicutti: Advisers are like stroppy kids with simplified advice

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Any parent will know what it is like to try and inspire a young child to engage in worthwhile and safe activities, especially during the summer holidays.

Sometimes, you strike it lucky: your ideas are greeted with enthusiasm. At other times, every suggestion you make is treated with scorn, not to mention a series of preposterous reasons why it is a bad idea.

Go to the park and play football? Too hot. Go swimming? Too wet. Stay at home and play board games? No one to play with. Activity camp? Too many other kids there.

Motivating children is hard work. For a similar experience with recalcitrant adults, one only has to look at the way the FCA is trying to encourage financial advisers to consider alternative ways of working, in order to reach more potential and actual clients.

This, it seems to me, is the only possible way to look at the FCA’s latest consultation paper, Retail Investment advice: Clarifying the boundaries and exploring the barriers to market development.

Money Marketing last week offered a quick guide to what it says, but any dedicated masochist should really spend a couple of hours going through the 56-page document in more detail.

What is striking about this guidance is not so much what is in it but, it seems to me, the underlying reason for its publication by the FCA.

Essentially, what the regulator is responding to is what it describes as an “expectation gap”. It defines this as “a difference between our expectations of firms and firms’ understanding of what is required of them.”

Fundamentally, the FCA has come round to believe that “a lack of clarity around our rules, their implementation and their supervision” is leading to many firms “shying away from providing products or services that would be beneficial for customers for fear of falling foul of the rules”.

In fairness, as the regulator itself acknowledges, part of the problem is down to the fact that “our stakeholders have told us having so many disparate documents creates a lot of ‘noise’, which can lead to uncertainty.

“They would find it useful to have all of the relevant information in one place when trying to develop new service models, in order that they can better understand the various options open to them.”

Categories of advice

Put another way, advisers are saying they want some very basic guidelines telling them what categories of advice certain activities they might engage in would come under. Never one to shirk a task, the FCA has obliged.

The intriguing thing is how much of this document is actually a statement of the bleeding obvious.

So, for example, the FCA is forced to go into enormous detail to explain “advice on whether to buy shares rather than debt is generic advice and is not regulated” or “advice to buy shares in the oil sector or shares with exposure to a particular country” is also generic advice.

Similar explanations apply when discussing whether simply giving information involves regulated financial advice: it is not, as long as it relates to giving facts about, say, the performance of an investment but then leaves it to the customer to make up their own mind as to what to do next.

The document explores a variety of scenarios, some of them more credible than others, to arrive at conclusions as to whether a limited sales process is appropriate and in what conditions.

Here, the FCA says if you ask a customer whether they want their existing investments considered in the context of any new ones they are discussing with you and they decline, you can then proceed with a limited sales process.

What you need to do is both record the fact and that the customer understands the implication of this decision.

On decision trees, the FCA is also clear: if you identify a range of products and simply present them to a customer, that is not advice. If you say these are “for you”, it is advice.

One of the potential controversies, certainly one picked up by some Money Marketing readers last week, is the issue of how a firm describes itself if it offers both a simplified and an independent advice.

The FCA states a firm offering both cannot call itself “independent” or promote itself as giving independent advice. 

Two distinct businesses

One interpretation of this is to say “any firm that decides it might want to help bridge the advice gap… will have to give up its independent status.” Actually, it does nothing of the sort: it simply says you will have to operate two distinct businesses, possibly with different names, offering separate propositions to your clients.

To me that makes eminent sense: how can you use the umbrella of independence to offer a service that plainly is nothing of the sort?

The amazing thing about his document is that far from being prescriptive, it sketches out a series of frameworks within which firms can operate a variety of business options to suit their needs.

Quite whether, like stroppy kids rejecting all of their parents’ suggestions, advisers choose to take the FCA up on its guidance, is another matter.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 21 comments at the moment, we would love to hear your opinion too.

  1. What’s the saying Nic ?

    If you get treated like a 5 year old you start to act like a 5 year old !

    RE-: your point
    “Go to the park and play football? Too hot. Go swimming? Too wet. Stay at home and play board games? No one to play with. Activity camp? Too many other kids there”.

    Maybe like the FCA or FSA before them you ask the wrong questions ? ask any boy if he would like to tear round the field on a quad bike or ask any girl if her and her friends would like to go shopping (wishing not to be to stereotypical) I bet you would get at least a 75% take up ?

    So in the same vain is the regulator sucking all the “fun” out of doing our job ? yes everyone has the mundane to do, even kids accept that; but its a two way street the past 6 years or so have been well ? detention without a lunch break !!!

  2. Nic you state/quote in your article, ‘if you identify a range of products and simply present them to a customer, that is not advice. If you say these are “for you”, it is advice.’

    The problem with the above, from an adviser’s perspective (and probably the consumers and most likely the FOS), is that in supplying a ‘recommended or condensed’ list of products/funds for any area of business (if you are independent/whole of market), it is by implication advice; as by the very active of refining a product or fund selection in any way, you are in fact saying these are for you as opposed to all other funds!

    Furthermore, how can you truly identify a need for a range of products without having carried out a part of a regulated sales process?

  3. Julian Stevens 17th July 2014 at 9:37 am

    Nic clearly has little or no experience of the way the FOS tends to see things.

    The complainant claims the advice he was given failed to outline potentially better options than those set out before him.

    The adviser says he made clear to the client that the scope of advice being provided was simplified or limited or restricted or whatever.

    The complainant says he [the adviser] didn’t.

    The FOS finds in favour of the complainant.

    How can Nic be surprised that intermediaries are extremely wary of this latest initiative?

    Things might be better if simplified advice could be encapsulated in Proposition, Costs, Tax and Risks without a full comparison and analysis of every possibly suitable product or solution on the market and, if prospective clients want to consider alternative propositions from other sources of advice, they’d be free to do so. Indeed, perhaps they should be encouraged to.

    But that would be too simple for our lords and masters at Canary Wharf.

  4. I think Nic and the FCA miss the point. Adviser are not “acting like stroppy kids” in relation to what the FCA is stating, in fact most would agree with the FCA’s guidelines. The real issue and the main reason firms are wary of creating new sales processes is that the FoS interrupts the FCA’s guidelines very differently.

    To give you an example of just what we’re worried about take the line “On decision trees, the FCA is also clear: if you identify a range of products and simply present them to a customer, that is not advice.” On the face of it we would all agree but when push comes to shove the FoS will agree with the client should the client decide to say that they ‘thought’ it was advice or our decision tree did not take into account enough variables to be able to provide a suitable range of products or you missed off this one product from your range etc etc.

    That is the route of the problem. Ask any kid if they are willing to agree to do something with one parent while running the risk of the other parent telling them off for doing that very thing.

  5. Nic, The FCA is not the problem here – The problem is the FOS and this will remain thus until the boss of the FCA and FOS get together to agree that the FOS cannot find in favour of the complainant if the adviser followed the rules in place at the time of the event. None of this retrospection cr*p thank you very much. This agreement is unlikely to happen as FOS gloats in the fact it is independent f the Regulator and sets its own rules, agenda and outcomes.

  6. I used to take my 5 year old to the park to play COBSball, which is a great sport that I’ve invented. But I kept having to penalise him because he would not stop going offside. He would whinge and moan that he didn’t know he was offside, at which point I would point out that the offside rules are clearly defined in the 672 page document “The Laws Of The Game Of COBSball” which I issued to him before we started playing.

    Anyway, he seemed to cheer up after scoring a goal. Until I disallowed it for unfair use of the duodenum, which may have been legal at the time he kicked the ball, but had been retrospectively deemed to be inconsistent with the new framework of Playing COBSball Fairly by the time it went between our jumpers. “It’s not fair!” he shrieked. “You’re making this game up as you go along!”

    “I am an independent arbiter,” I reminded him, “and my decisions are not subject to the rule of law or oversight by any other body. You may request a judicial review but it will cost you all your pocket money for the rest of your childhood, and no little boy has ever won one yet, so you may as well just stop moaning and get on with the kick-off.”

    Now whenever I ask if he wants to play COBSball, he refuses. Stroppy little sod.

  7. Brilliant Sascha !!!! absolutely brilliant.

  8. carrie-ann woodgate 17th July 2014 at 12:25 pm

    can Sascha run for government please – that’s the best description of the FCA in years .. Bravo!

  9. We’ve all tried to play COBsball. Most of us have been sent off at some stage by the FOS referee and the untrained officials appointed by the Treasury

  10. Curiously, MM has an article out today entitled “Anything but simple: FCA fails to deliver clarity on simplified advice”

    Quotes in this article from people with real knowledge and understanding include…

    “What the paper says about the FOS is not very helpful. The FOS will continue to apply its fair and reasonable test to each individual case.” Peter Hamilton

    Pinsent Masons legal director Tobin Ashby says this does not give firms enough clarity. “Therefore, it will be difficult for firms to set their own boundaries and assess the level of risk they are taking on.”

    EY financial services senior adviser Malcolm Kerr says the paper “raises as many questions as it answers” and “It does not help firms develop anything that is really compelling for the consumer.”

    Adam Samuel says: “This paper adds nothing and it solves nothing. It is really only collating the existing rules in one place.”

    So, Nic, are you professing to understand the technical and practical nuances better than the above commentators?

    And if it was all so obvious and easy to get to grips with why does it need 56 pages and detailed technical analysis to put across? The whole area is fundamentally flawed and needs re-vamping, not clarifying or twisting what’s already there.

  11. Perhaps in order for Nic to truly understand advisers’ concerns, there should be a Clickbait Ombudsman Service which any of us could complain to if we didn’t like one of his articles. Not just this article but any article any of us cares to dig out of the MM archive, without time limit.

    If the Ombudsman ruled that Nic’s article was wrong, or indeed if he was actually right but he’d written it so badly that we couldn’t be expected to realise he was right, or if his lede went on so long about what he’d been up to in his shed we couldn’t reasonably be expected to read the whole thing; then a fee of up to £100,000 would be personally payable by Nic to the complainant in redress.

    It wouldn’t cost anything to set up – we’d just need a bunch of unemployed randoms and temps to review Nic’s articles and make decisions on their validity. Of course Nic might complain that the ombudsmen keep finding against him because they don’t grasp irony, hyperbole, satire, pathos or the other tools of the writer’s craft, but he’d be missing the point. Our ombudsmen would be making judgements on facts so there’s no reason they should have a qualification in journalism – a D in GCSE English would do.

    It would naturally be free of charge for us, but Nic would have to pay a fee of £550 each time someone complained.

    Sound fair? What’s good for the goose…

  12. Whilst not wishing to have a pop at Nic at all, I have to say that Sascha has just hit the nail very, very squarely on the head and in the process helped me to reconcile why I have become so disillusioned with this industry!

    Hopefully it also demonstrates clearly to those who view us from outside, the nonsense which is at the heart of the matter and also why it costs so much to deliver their solutions to them.

  13. carrie-ann woodgate 18th July 2014 at 10:23 am

    sascha for president!!!

  14. I was about to make the same point as Grey Area about the other MM article directly opposed to Nic’s comments.

    Oh to be a journalist……with no worries about what unforseen turns and twists lie unforseen down the regulatory road!

  15. Nic, sadly you embarrass yourself by demonstrating your ignorance.

    Until the FCA says that the client can sign a declaration stating that as it is simplified advice or execution only, unadvised or whatever and that the adviser is not responsible for it being ‘holistic’ and the client can’t claim recourse to the FOS, the vulnerability will persist.

    Perhaps he should read some of the published judgements against advisers and banks, etc to see what can happen.

    Having an Ombudsman make a hindsight decision as to its relevance some many years from the ‘event’ is not a vulnerability many are brave enough (or stupid enough?) to accept.

  16. Nic I think you have clearly demonstrated why you are a journalist and not an adviser as you clearly have no understanding of the potential liabilities that advisers are storing up if they don’t have the correct paperwork to backup their recommendations.

    The adviser community wants to come up with new ways of giving advice including myself but and this is the important but, if we give advice on the so-called simplified basis, how do we know that that simplified structure is going to be within the FCA rules when they do not even quantify what simplified advice actually is?

    And as for not allowing independent firms to offer simplified advice, surely this is just going create even more confusion as I am sure that some advisers will open up group structures with subsidiaries e.g. independent subsidiary and restricted subsidiary under one group. After all is that not what the big corporations do? I call that smoke and mirrors and as clear as mud but that seems to be what the FCA are actually recommending.

  17. BTW…I reckon Harry’s on holiday this week!

  18. Unfortunately Nic Cicutti will never get the point and doesn’t want to and all of the parodies regarding park games etc. won’t embarrass him enough to change his remit. he has been placed on this planet to wind people up and to avoid answering his critics when he has a blatently obvious flaw in his logic. Sascha KlauB would probably find a similar strawman baddie in one of those Ayn Rand novels.

  19. Of course if one took the view that one aspect of a good journalist is the ability to stir things up a bit, then Nic clearly has this by the bucketload!

    Hmm…..light blue touch paper – stand back – observe…….

  20. @Chipping. Nic’s numbers have been down recently so I think you can say that!

  21. brian weatherley 21st July 2014 at 12:45 pm

    All very worrying. The uninformed seek advice appropriate to their circumstances. Fine However, they are then asked in their ignorance to cope with the differentiation between “simplified advice” and “advice” Well, says the Adviser,” I will present a list products capable of meeting your perceived needs; you then choose what you think is the most suitable in your circumstances”.But, says the Client, I do not know and is the reason I came to you in the first place. So what else can you do to HELP me?
    The Adviser replies,” on the other hand I can give you the same list of products but having due regard to your circumstances and aims, I will advise you by recommending the most suitable product capable of the resolution of your needs.”
    “Ah” says the client, why didn’t you tell me in that in the first place?
    Well, replies the Adviser, you asked me for a “simple answer to my present situation” and I am governed accordingly.
    I could go on and on but, please, FCA, put neither Advisers nor Clients in this ridiculous situation. User friendly and simple definitions of ” advice” and its associated divisions are needed today.

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