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 email@example.com