Article by Phil
The Financial Conduct Authority (FCA) has launched its latest consultation paper to look at how more people might get more simplified access to the advice market. The consultation “Broadening access to advice for mainstream investments”, looks at closing the Independent Financial Advisor gap by changing the rules for ISA investments up to £20,000.
The proposals are trying to cut down on the paperwork required. But the initial response has not been positive. It seems that few new measures are being proposed.
In our view, the FCA should be more radical. One thing they could consider is to remove large parts of the market from the financial protections of the Financial Service Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS) in order to reduce the risk (and the costs) of advice. It might not be a bad idea to start with the ISA market because this is low risk.
It would also be a way to close the Independent Financial Advisor gap by encouraging the Banks back into the “advice” market. They are the ones with the most customers.
Another route could be using auto enrolment platforms to deliver some low value, limited advice solutions. These systems are already set up for pensions and reach millions of workers.
The trouble with simplified advice is that advice is never that simple!
For example, the latest research from Quilter suggests that over 50% of its female clients expected Quilter to consider ESG factors when managing their investments. Even if this meant narrowing their investment choice. But that also means that almost 50% of clients didn’t want to consider ESG factors. Therein lies the difficulty. As soon as you start getting into discussions about investment choices, risk, ESG factors etc advice suddenly becomes much more complicated. At the same an expectation arises that all these matters will be considered. If they aren’t then it goes full circle and clients start to look for redress. Which adds to the cost and the circle continues.
There doesn’t appear to be an easy fix.
Financial Advisers are largely unconcerned by the plans. With minimum fees, clients really need to have well over £100,000 in assets to make advice cost effective. But more people getting access to simplified advice would probably mean more people needing full advice later down the line. Closing the Independent Financial Advisor gap.
Even though advisers have seen an increase in business since the pandemic. Research from systems provider Dynamic Planner found that 65% of advice firms had seen an increase in business. Less than 5% reported a downturn.
