The Personal Investment Management and Financial Advice Association has urged the FCA to “go further” in addressing key structural barriers holding back progress in closing the financial advice gap.
In response to the FCA’s consultation on simplifying the pensions and investment advice rules, PIMFA said it supports the intent behind the proposed changes to suitability, along with a number of proposed changes to the simplified advice and ongoing advice services regimes.
However, it raised concerns about how the changes to suitability will impact firms providing holistic financial advice.
Simon Harrington, head of public affairs at PIMFA, said: “The repositioning of ‘necessary’ information to ‘sufficient’ when determining suitability marks a significant departure from the current rules, and in theory removes some of the existing frictions which exist in the current advice process.
“Whilst we support this change, in that it gives firms more flexibility within their current propositions, it is less clear that this will lead to the development of simplified advice propositions among established financial advice firms in the manner the FCA might wish.”
PIMFA said it sees “issues” with these proposals which begin in the envisaged consumer journey, in particular how firms can come to the conclusion that an individual might benefit from a simplified form of advice without undertaking a holistic fact find.
“Without clarity on this issue, the repositioning of the advice rules, welcome as they are, risk being rendered less impactful in practice,” the trade body said.
It has called for clear guidance on the scenarios where ‘sufficient’ information could be used to deliver a simpler form of advice and how this differs from ‘necessary’ information in the current framework. In addition, PIMFA said the regulator must also set clear expectations for firms in instances where they become aware of information not material to the delivery of limited scope advice but which could have wider implications for the client’s broader financial circumstances.
Elsewhere in its response, PIMFA said the FCA must provide greater clarity on supervisory expectations, including what it considers to be ‘good’ and ‘poor’ practice and how the impact of these changes will be monitored.
It also strongly believes existing arrangements around legacy trail commission should be maintained, warning that removing them would be a “significant undertaking” for the industry, with many firms facing considerable barriers around data and record keeping. Furthermore, it cautioned that removal could also leave clients in a worse financial position.
Harrington added: “Closing the financial advice gap requires a full continuum of support which can support consumers at every stage of their financial lives. These reforms have been set out with clear intent to drive better outcomes, and the FCA deserves credit for its collaborative approach and clear display of ambition.
“That said, some uncertainty remains, and the regulator must go further to address key structural barriers holding back progress. With some refinements, particularly to the proposed suitability requirements and the guardrails for simplified advice, we believe these changes can drive genuine progress.”
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