Simplified advice? Not so simple.
The Financial Services Authority (FSA) has published guidance consultation on its plans for a simplified advice regime.
Simplified advice is seen as an important strand of current regulatory reforms.
It should provide a way for straightforward financial advice needs to be serviced without the adviser (and investor) having to participate in the more formal detailed advice process.
Unlike the information and guidance provided by the likes of the Money Advice Service, simplified advice would result in a specific product recommendation.
The FSA guidance consultation explains that simplified advice is typically automated and is process-driven. It is not designed to provide advice in respect of any existing financial products an investor might own.
Simplified advice would only be appropriate for people who already have their debts under control (e.g. all unsecured debt paid off) and their core financial protection needs satisfied. People in this position would then be able to receive simplified advice on some retail investment products.
It is clear from the FSA guidance consultation that the same higher standards being introduced by the Retail Distribution Review (RDR) will also be applied to simplified advice. The new rules for remuneration, where adviser charging is the only option, and minimum qualification levels would both be applied to simplified advice.
The FSA expects that simplified advice will fall under the category of ‘restricted’ advice from the end of next year, as it would not be ‘independent’ in its scope.
Our initial conclusions after reading this guidance consultation paper is that simplified advice is not going to be the ‘magic bullet’ many in the retail financial services sector thought it might be.
The narrow market of potential customers for simplified advice (those with no unsecured debt and core protection needs already fulfilled), is unlikely to be as appealing to product providers or advisers as the more general mass market previously anticipated.
The requirement to operate an adviser charging remuneration model, where fees for simplified advice are deducted directly from the investment, is often difficult to apply to regular investments or premiums. If an adviser delivering simplified advice needs to meet the higher minimum professional standards, it is unclear why they would choose to deliver simplified rather than independent financial advice.
This guidance consultation is bound to generate a lot of debate. The savings gap in the UK still needs closing. If simplified advice is not the solution, what is?
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