The Personal Investment Management and Financial Advice Association (PIMFA) have written to the FCA proposing a new set of rules to allow advisers to offer a simplified financial advice proposal.
The issue of simplified financial advice has been around for some time now. So far the advice market has attempted to offer this through an automated approach, often referred to as “robo advice”. But take up has been low.
There is certainly a gap in the market. Only 4.1 million people currently have a financial adviser. But data suggests that there are over 15 million people with over £10,000 in savings who do not use an adviser, with almost 40% of these holding all their savings in cash. It is these people that PIMFA are hoping to access to provide advice.
So, what are their suggestions?
According to PIMFA, the FCA should:
- Set out specific indicators for when firms can offer a simplified advice solution.
- Allow firms to “diverge sufficiently” from existing suitability requirements when providing simplified advice.
- Adapt handbook to provide firms with certainty about their responsibilities in offering simplified advice.
- Set out a specific set of prescribed questions which enable firms to establish a base level of suitability information with a view to recommending a product or set of products.
This might work.
Especially for straightforward products like personal pensions, ISA’s and general investments etc.
The key issue that advice firms will want to know however, is what means of redress will be available to customers taking simplified financial advice. Currently advice firms must hold Professional Indemnity Insurance to cover their advice and clients have redress to both the Financial Ombudsman and the Financial Services Compensation Scheme. If these elements remain in place I’d be very surprised if the proposals even got off the ground. It simply wouldn’t be cost effective for firms to offer a low fee service whilst taking on all the risks of full advice and the insurance requirements. This is one of the main reasons that the cost of full advice has been increasing so significantly over the last few years.
On solution might be to make the product providers responsible to make sure that the product fits the clients simplified financial advice needs. This would take liability away from advisers.