Article by Christina
The FCA have announced plans to consult on the introduction of measures to introduce simple financial advice and make it cheaper and more accessible.
This is certainly needed with the number of advisers dramatically falling year on year.
The idea is that advisers will be allowed to give “guidance” and “tips” to people, but not personalised advice.
There will be clear rules set out to identify the boundaries between advice and guidance. The ability to provide guidance to certain groups of people (as though they were all the same). Plus, simple financial advice guidelines for people with less money and simpler requirements.
But will it succeed? Some advisers aren’t sure.
There seems to be a huge conflict between the desire to introduce simple financial advice at a lower cost and the Financial Conduct Authority’s (FCA) recent announcement of higher running costs for advisers, for example.
The latest proposal from the FCA is that adviser firms should have to hold more capital resources on their balance sheets in order to pay potential compensation claims. That’s despite small firms like ours already having to hold over £50,000 in capital and have Professional Indemnity Insurance cover of £1.8million. Plus contributing over £10,000 a year in fees to the FCA to cover the costs of the Financial Services Compensation Scheme (FSCS).
The idea is that firms should assume that a certain percentage of the advice they provide will be bad advice. They should then calculate how much compensation they might have to pay for this “bad” advice and hold enough money in reserve to pay for it.
As if we expect to give bad advice in the first place!
But the question is. How does this sit alongside the desire to allow us to give advice and guidance to customers at a lower cost and without all the current checks and controls? The FCA seem to be suggesting that we won’t give “bad” simple financial advice, tips and guidance to people that we hardly know, but we will give “bad” advice to those who we know very well because we are taking into consideration all their circumstances.
That seems illogical to us.
What is likely to happen is that “big” advice firms will benefit from this proposal. Including the Banks. These big firms will be exempt from the requirements to hold more capital resources because they are deemed to be big enough not to fail (despite what happened back in 2008).
There is also a suggestion that firms may be able to provide guidance for free in some cases. This would need a relaxation of the cross-subsidy rules which came in back in 2012 to stop Banks offering free reviews and then recommending their own products were “purchased”. It seems that the FCA thinks that it might be a good idea to go back to those days.
Of course, this could also open the door for Artificial Intelligence to get more involved in financial services. But the FCA is likely to exclude more complicated advice areas like pension decumulation, which would cover annuities, drawdown products and uncrystallised funds pension lump sums.
Those of us providing full holistic advice are unlikely to get involved in these new tips and guidance arrangements and will stick to providing a gold standard service to those want it. Although the costs may have to go again to cover the compensation claims coming down the line from the unregulated tips and guidance firms!
