FCA says that it "does not want to stand in the way" of UK firms developing simplified advice models

Out-Law News | 25 Apr 2014 | 4:27 pm | 2 min. read

The Financial Conduct Authority (FCA) has given its first indication that it is hoping to loosen regulatory restrictions on firms that provide "simplified" advice targeted at lower-value, non-sophisticated clients.

At a recent event in London for financial advisers, FCA technical specialist Rory Percival said that the regulator was keen to "unblock" any issues that were discouraging firms from innovating. However, he said that in some cases firms were implementing processes that went beyond regulatory requirements, with the effect of driving up costs.

"We want to understand what the issues are so firms can innovate," Percival said, in comments carried by trade publication Money Marketing. "We do have rules about what is advice and what is not and we want to make clear what that means in practice. If we are preventing progress we want to unblock that blockage."

"There is a tendency in some cases for over-compliance. So that is an area that has cropped up and is a concern of ours. We sometimes see processes which are for processes' sake. In some cases it seems costs have come from over-compliance," he said.

In an email to Out-Law.com in January, the FCA said that it was investigating why many retail investment platforms were choosing to provide non-advised, 'execution-only' services rather than developing technology to streamline and automate financial advice. It is currently carrying out a thematic review of the effect this shift in business models is having on investors.

'Simplified advice' is a term used to describe where an adviser provides a personal recommendation to assist consumers in making straightforward investment choices. The provision of simplified advice is different from the provision of basic advice, which encompasses advice on stakeholder products using a process that involves putting pre-scripted questions to the client. Each type of advice is subject to different regulatory rules.

There has been uncertainty among some platform operators about the extent to which information they display that describes financial products will be caught by the regulatory criteria that classifies the display of information as the provision of retail investment advice. At the event, Percival said that the FCA would make the differences between advised and non-advised sales clear when it published the results of its review later this year.

Insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said that although the industry had "been here before", the fact that the previous Financial Services Authority (FSA) had now been replaced by a more outcomes-focussed regulator pointed towards the redevelopment of a market for simplified advice.

"Anyone who has read the FSA's guidance on simplified advice from March 2010 will know that this guidance stopped all developments of a simplified advice process dead in their tracks," he said. "Some providers and advisers spent considerable sums in research and development at that time and presumably, unless there is some degree of certainty around any new proposals in this field, they will not be rushing to set up new projects to launch this new service into the market."

"That said, times are different now – there is a new conduct regulator with different objectives and it is focused more on outcomes, which must mean taking a very serious look at how customers might be served through a simplified advice process and whether the advantages of having such a process outweigh the disadvantages of not having one today in this post-RDR world. There are many 'orphan' customers and those with simple needs that can't afford advice. Others just need the nudge in the right direction that simplified advice could give," he said.

"Coupled with the prospect of simple products which can be bought without any advice and the growth of the non-advised, execution-only market, there seems today to be more of a reason to believe that there is indeed a place for a simplified advice service to give customers a real choice about which service would suit them best," he said.