The Financial Conduct Authority has set out proposals for a “simplified advice” regime for stocks and shares ISAs in a bid to make regulated advice more affordable to consumers. But commentators have raised concerns for advice firms who might wish to follow through on the regulator’s proposals.
In a consultation paper published on 30 November 2022, the watchdog said the move will help consumers who hold large sums of cash to invest, potentially for the first time, into stocks and shares ISAs.
It said that although less wealthy consumers do not access professional support as often as wealthy consumers, many still want more support when it comes to making financial decisions including investing in stocks and shares ISAs.
Features of the proposed regime include simplifying the customer ‘fact find’ advisers are required to undertake and limiting the available investments to avoid any high-risk investments.
The FCA is also proposing to reduce the existing qualification requirements to reflect the lower risk of advice needed and allow greater flexibility in charging structures, enabling consumers to pay for transactional advice in instalments.
According to the FCA’s Financial Lives Survey, 4.2 million consumers hold £10,000 or more of investable assets, mostly or entirely in cash, despite having some appetite to take investment risk. However, it warned that many consumers are likely to experience harm as a result of the real value of their assets falling due to inflation.
Trade association PIMFA welcomed the proposals, calling them a “significant building block” in providing individuals with a safe way to save and invest.
Simon Harrington, head of public affairs, said: “These proposals provide consumers with a first step on the ladder towards accumulating wealth in an efficient manner and should build broader individual confidence in the saving and investment market and the financial advice profession more broadly. We look forward to engaging positively with these proposals.”
Alistair Black, head of industry change at abrdn, also showed support for the FCA.
Black said: “Advisers want to be able to offer accessible, affordable advice to match clients’ wide range of needs. And clients don’t always want, or even require, a full review, which can be costly to both deliver and buy. In some cases, clients also want advisers to be able to help their children, who have much simpler, limited needs, but can’t currently get the support they need without going ‘all in’.
“Opening up a middle ground of simplified, cost-effective advice that still adheres to the principles of Consumer Duty will be a win-win for savers, investors and advisers alike. As well as helping more people who need advice access it, it will allow advisers to extend their expertise across generations. This will ultimately engender greater financial resilience and wellbeing across the population, and broaden advisers’ client bases.”
However, others noted that the proposals, while a positive step forward, would not fully address the advice gap and raised a question mark over ongoing support.
Tom Selby, head of retirement policy at AJ Bell, warned of the increased liability risk.
Selby said: “The regulator will be hoping more people will take advice and invest for the long-term, rather than stashing their savings in cash and risk seeing it eroded away by inflation.
“While stripping back qualification requirements and creating a narrow set of investment options may be enough to tempt some firms into the market, the regulator will likely have its work cut out assuaging concerns about liability. Ultimately if something goes wrong, it is the firm offering the advice – whether simplified or otherwise – that will be on the hook.”
Selby said it is important that the proposals are not viewed as a one-and-done solution to the advice gap challenge and policymakers should focus on ensuring both advised and non-advised parts of the market are able to support people.
“Even if simplified advice takes off, there will be millions of savers and investors who either can’t afford to pay for advice or choose not to take it, or both. Low-cost advice will likely only provide a partial solution for a relatively small subset of the population, with the majority relying on the information and guidance they receive from other sources to make good decisions when it comes to saving and investing.
“Lack of clarity over the advice/guidance boundary remains a significant challenge in providing useful information to those who choose not to take advice, and it is important the FCA carries out the promised review of these challenges as soon as possible,” he added.
Steven Cameron, pensions director at Aegon, said: “The focus at this stage is relatively narrow – supporting individuals who might benefit from investing their ‘excess cash’ savings into a stocks and shares ISA.
“Financial adviser firms are likely to have more interest in the promised holistic review of the advice / guidance boundary which could open up a far wider range of new services to a broader range of customers. We also hope the FCA will consider these proposals alongside the concept of more personalised financial guidance.”
Cameron added: “These proposals also need to be assessed through the extra lens of the new Consumer Duty. Any firm considering introducing the new service will want to be absolutely sure it will deliver good outcomes and avoid foreseeable harm. With a maximum investment of £20,000, the cost of simplified advice, whether or not spread, will be a major consideration when assessing value. There is also a big question over how to provide ongoing support for those who through investment growth or year-on-year investments exceed the £20,000 limit, excluding themselves from the new simplified advice service in future.”
