The Financial Conduct Authority should not overlook the importance of basic advice as a means of bridging the UK’s advice gap, says Foresters Financial.
In a white paper, the firm urged the FCA, Treasury and Government to ensure that the basic advice model is not overlooked, either purposefully or inadvertently, as a result of the ongoing FCA and HM Treasury consultation on financial advice and guidance.
Basic advice was introduced in 2005 to enable firms to provide simpler and lower-cost advice to consumers on ‘stakeholder products’; straightforward, low-risk savings and investment products. It uses a structured decision-free process and is distinct from full financial advice, offering a more accessible and cost-effective route for those who may not want or need comprehensive advice.
In its white paper, titled ‘The Overlooked Solution: Why Basic Advice Still Matters’, Foresters said basic advice can play a ‘major role’ in helping to bridge the UK’s advice gap, where a large proportion of the population that could benefit from financial advice remains unsupported or turns to informal sources of information.
Andrew Whyte, chief executive of the Association of Financial Mutuals, said: “The advice gap is a barrier for millions of people to better financial outcomes, long-term resilience and ultimately, to trust in the financial system.
“This is why we see strong merit in the case for making basic advice integral to a more inclusive, diverse and proportionate advice ecosystem. The customers it reaches are typically less likely to engage with digital-only solutions and often fall through the cracks of the system under which regulated advice is currently provided.”
Foresters is calling upon the regulator to bring basic advice into regulation in a “clear way” so that other firms can adopt it and enhance the regime to serve the simple investment and pension needs of more customers.
Its recommendations include clarifying basic advice for stakeholders products in the FCA handbook; enabling advisers to recommend the best fund for customers in line with their risk appetite assessment; and broadening the range of funds offered under basic advice to include 100% equity funds in order to prevent the exclusion of customers with longer investment horizons and higher risk appetites.
Foresters said basic advice could offer support to up to 4.3 million UK adults who previously were not receiving financial advice, equating to more than a quarter of the 15.8 million adults falling into the advice gap.
The firm said that while the FCA’s proposals for targeted support are welcome, they do not go far enough.
Nici Audhlam-Gardiner, chief executive of Foresters UK, said: “Basic advice is a step beyond targeted support, filling a critical underserved space and offering distinct benefits. We see the basic advice regime as critical to addressing the advice gap.
“We urge regulators to bring formal recognition to basic advice to encourage its uptake at scale. By recognising what has worked well historically and implementing improvements that adapt the regime of the future, basic advice can play an integral role in the advice ecosystem.”
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