New regulation to allow enhanced guidance is expected to be introduced, which may allow advisers to recommend specific products from a limited product set.
Speaking at the Corporate Adviser summit, Pimfa’s head of public affairs Simon Harrington said that reform of the advice process could lead to more personalised guidance that would crucially lead to a sale in certain circumstances.
He predicted that such legislation was becoming increasingly likely, particularly because the FCA recognised that this could improve customer outcomes, and had recognised that there was a limit as to how much it could simplify products. There was also a legislative opportunity for such reform with the Financial Services Markets Bill going through Parliament that will effectively allows the government to revoke and onshore EU regulation. Harrington said: “This means that the Mifid regulation are up for grabs, and in particular article 4 (4) which concerns personal recommendations.”
Harrington said he thought there was a middle way between ‘full fat’ financial advice and guidance. With the latter he pointed out that currently this does not allow those giving guidance to recommend a specific product or course of action.
Harrington told the delegates that the advice gap existed and was resulting in poorer outcomes particularly among middle earners, the so-called ‘just about managing’ demographic. He said that there are currently around 27,000 financial advisers in the UK, but most of these did not wanting to offer full-service advice to those with a £70,000 pension for example. This has created a need for third way option.
He said the key to this being successful was to remove the issue of liability from the suitability of the advice, and for liability to be related to the product. He said that this is less likely to result in consumer detriment if this enhanced guidance, or more streamlined advice was only allowed with a narrow range of products, for example pensions, ISAs, GIA and ‘vanilla’ funds.
He said the FCA had made positive noises about such a change, and he expected them to produce a paper seeking industry views on this issue in the near future.
Harrington said he anticipated that most advisers operating under any such regime would do so on a restricted or tied basis.