Simples. Anyone waiting for some fresh insight or initiative in the long-awaited FSA draft guidance on simplified advice will be sorely disappointed. The FSA stated at the very outset that it would not cont-emplate a new regime and it was true to its word. In conseq-uence, all along, the dialogue between the trade bodies and the regulator was controlled by the FSA to be so much dancing on the head of pin.
One wonders why the trade bodies bothered but they were acting in good faith to try to address a valid problem by seeking small changes to the existing advice regime to allow growth in the market. But small changes were never going to be enough to conv-ince risk managers that the thin margins inevitable in such an offering were worth the same regulatory risk as full advice. Moreover, the FSA appears to be raising the bar while it is at it, issuing a warning about the use of risk profiling tools and advising that they expect all, yes all, the data in any new simplified advice system a firm might develop to be available to the FSA. What they would do with it is not entirely clear.
Some quite obvious lessons emerge from this unfortunate waste of everyone’s time. The key problem is that the trade bodies held their dialogue with the wrong party because its origins were in the RDR programme. Instead, they should have engaged with the Government. The Government could then have explained to the regulator what was wanted. In practice, the simp-lified advice issue is bigger than FSA rules – the issue requires a different approach.
Eighty per cent of house-holds have pretty much the same financial needs. It is the same 80 per cent of house-holds that IFA business models can no longer reach and certainly cannot reach for investment products under RDR conditions. And there is the rub. The RDR will distort the market for advice bet-ween investment and other products, yet 80 per cent of households have common advice needs spanning the two.
There needs to be a new dialogue between the trade bodies and these ministers to make the case for simplified advice. It cannot be a subset of the current regulated advice regime. Inevitably, it would involve compromises.
The providers would have to live on thin margins and give up the right to embellish products to secure compet-itive advantage with advisers. The consumer lobby would have to accept that to help more people prepare for uncertain futures, some people would suffer detriment but overall more good than harm had been done. And the regul-ator would need to be tasked with playing a more construc-tive part in solving the prob-lem of financial exclusion.
It is not too late to redirect this dialogue to the proper quarter. A draft Financial Services Bill is undergoing pre-legislative scrutiny. It includes provisions to retask the new conduct regulator. It is not too late to change it. This is the opportunity to be seized and IFAs should welcome it.
Richard Hobbs is public affairs and regulatory consulting director at Lansons.