The Financial Conduct Authority and government’s discussion paper on the advice guidance boundary review marks a milestone in the development of simplified advice. But to reach this point, it has been a long journey.
In 2016, a report on the Financial Advice Market Review noted previous attempts to design a system enabling firms to deliver cheaper forms of advice, but that they had not gained traction in the mass market.
And more recently in November 2022 the FCA proposed a new core investment advice regime, with the aim of broadening access to advice of narrower scope; but these received “limited support” from the industry, the regulator said.
So with the advice guidance boundary review marking another attempt at closing the advice gap, how much of a feat is the FCA and Treasury looking to achieve?
“History, and not just the attempt at core investment advice, shows it is notoriously difficult to come up with workable simplified advice models,” says Aegon’s pensions director Steven Cameron.
“The challenge is to be able to safely ringfence an area of need to focus on, and to make that cost effective to then deliver upon. To me, the biggest concern in the discussion paper is the suggestion that advice firms wouldn’t be able to offer targeted support.
“Ideally, adviser firms should be given the chance to explore how best to enhance their range of support, be it under simplified advice or targeted support. This looks like the best way of delivering the continuum of support services the FCA and Treasury are aiming for.”
The discussion paper sets out three options to fill the advice gap, namely further clarifying the boundary, targeted support, and simplified advice.
The third proposal for simplified advice requires deciding, among other things:
- what should, and should not, be in the scope of simplified advice; and
- how to charge for simplified advice but, as the paper states, “without undermining the changes made as part of the RDR”.
Clive Gordon, a senior adviser at Sicsic Advisory, a regulatory and risk consultancy, likewise notes how the FCA has previously made unsuccessful attempts to launch simplified advice regimes. But this time, he says, there are reasons to be optimistic.
“Having experienced the limited industry support for core investment advice regime proposals [in 2022], the FCA has become bolder than before to get industry buy-in it needs for this to work.
“Increasing the scope from £20,000 to £85,000 will help, as will the regulator being prepared to set out in rules, rather than guidance, the only client information that firms will have to collect.
“Making advice affordable to consumers is also key to success. The FCA now seems happy to allow targeted support to be cross-subsidised and therefore free at the point of use, and the same approach for simplified advice would be worth considering.”
In previous proposals for a core investment advice regime, the FCA suggested an investment limit of £20,000, but is now exploring the option of increasing the upper limit for receiving simplified advice to £85,000.
Jenny Davidson, Quilter’s commercial proposition director, says the new proposals have not moved the needle very far from the previous consultation on core investment advice in 2022, but that the FCA has sought to make the regulatory requirements more proportionate in a bid to make it commercially viable.
