The Financial Conduct Authority’s ‘core advice’ regime has been paused and rolled into a wider review of the boundary between advice and guidance, in a move welcomed by the advice industry.
The watchdog said it wants to see more consumers “invest with confidence” and understand the risks they are taking and what regulatory protections apply. However, it noted that some firms may be hesitant to provide help to consumers due to an “overly cautious interpretation” of the regulatory framework and because they are concerned about the requirements that would apply if they provided a personal recommendation.
In its Advice Guidance Boundary Review, carried out in collaboration with HM Treasury, the FCA said it wants to create a system that ensures consumers get the help they want, at the time they need it and at a cost that is affordable. However, it recognised that the solution to this challenge will not be met by changes to regulated advice alone. Rather, it said firms will need to actively engage and provide flexible forms of support that can adapt to different types of financial decisions.
Sarah Pritchard, executive director, markets at the FCA, said: ‘It is vital that people get the help they need to make effective decisions – whether that be guidance or full financial advice from a qualified financial adviser. This is particularly so now, with the cost-of-living pressures.
“We want consumers to have greater confidence to invest, but to achieve that people need access to the right information to help them make decisions, understanding levels of risk. Our joint work with the Treasury in the months ahead will help to achieve that. In the meantime, and to see quicker improvements, we are taking steps now to give firms greater confidence to support consumers, pending broader reform, by clarifying the boundary of the current regime.”
AJ Bell has welcomed the decision to pause proposals to create a new ‘core advice’ regime and instead focus on a wider review of the boundary between advice and guidance. Recent research by the investment specialist showed limited support for the plans, with just 7% of advisers planning to offer a ‘core advice’ service.
Tom Selby, head of retirement policy at AJ Bell, said: “The FCA and the Treasury deserve credit for recognising that pushing ahead with ‘core advice’ plans that very few in the industry supported was a dead end. If government, the regulator and the wider industry are to provide more useful guidance and advice to the millions of people who desperately need it, ensuring broad support for any solution is essential.
“Ultimately, the success of the Advice Guidance Boundary Review will be judged on the outcomes consumers experience and the quality of help they receive under any reformed regime.
“If a solution is proposed but nobody is willing to offer it, then clearly there will be no consumer benefit – and the fact only 7% of advisers were interested in the proposed ‘core advice’ regime spoke volumes. That the FCA and government have established working groups representing both the industry and consumers as part of the Review should ensure any proposed solutions are both practical to implement and in consumers’ interests.”
Selby said the Advice Guidance Boundary Review has the potential to “radically improve” the support savers and investors receive. Currently, a lack of clarity over the boundary, combined with strict rules preventing personalised communications, means many people receive only generic help with making often complex financial decisions.
Selby added: “The clarification on the advice guidance boundary provided by the FCA today may prove useful, although it is likely more radical reform will be needed further down the line if we are to make a meaningful dent in the ‘help gap’.
“Consumer Duty and its focus on good consumer outcomes provides a unique opportunity to rethink the way financial guidance is delivered to people. The aim here has to be to maximise the support available to consumers of all means, with a recognition that most will be either unwilling or unable to pay a fee.
“It is crucial any solution brought forward can be implemented simply across a firm’s entire customer base, is not overly burdensome and offers the necessary flexibility to allow businesses to devise guidance solutions that suit their customers’ needs, in line with the key principles and requirements of Consumer Duty.”
Aegon has also welcomed the guidance boundary review, believing it could pave the way for a more personalised form of guidance.
Steven Cameron, pensions director at Aegon, said: “We welcome the latest update from the FCA which provides more detail on the direction of travel of the advice guidance boundary review it is undertaking with the Treasury. We particularly welcome the FCA acceptance that the solution to supporting customers make informed financial decisions will not be met by changes to regulated advice alone.
“Advisers provide hugely valuable support to millions of individuals each year, but particularly since the Retail Distribution Review there has been a persistent advice gap. The current regulatory regime, with very limited options alongside full regulated advice, has created an even wider ‘support gap’, which has been exacerbated by the cost of living crisis.
“It’s imperative that advice services continue to thrive. But to complement this, there could be major benefits if those regulated firms who want to, were permitted to offer a new more personalised guidance service. This might allow them to support currently unreachable client groups, getting them on the road to good ‘Consumer Duty’ outcomes. And once these clients begin to appreciate the benefits, they’re much more likely to return to the adviser for full advice when they need it.”
