Firms should give more guidance to customers because of their new consumer duty obligations, the FCA says, as it sets out the parameters of its joint review of the Advice Guidance Boundary with the Treasury.
The FCA says to provide more support to more people it will be necessary for firms and consumers to manage risk, rather than eliminate it, because risk is a key driver of cost to firms and ultimately to consumers which directly impacts on the availability of support.
The regulator has acknowledged that any solution will rely on support being provided on a commercial basis. The review will need to focus on outcomes and design a regulatory system where commercially viable models of support can emerge.
Sarah Pritchard, executive director, markets at the FCA, says: “It is vital that people get the help they need to make effective decisions – whether that be guidance or full financial advice from a qualified financial adviser. This is particularly so now, with the cost-of-living pressures. We want consumers to have greater confidence to invest, but to achieve that people need access to the right information to help them make decisions, understanding levels of risk. Our joint work with the Treasury in the months ahead will help to achieve that. In the meantime, and to see quicker improvements, we are taking steps now to give firms greater confidence to support consumers, pending broader reform, by clarifying the boundary of the current regime.’
Tom Selby, head of retirement policy at AJ Bell says: “The FCA and the Treasury deserve credit for recognising that pushing ahead with ‘core advice’ plans that very few in the industry supported was a dead end. If government, the regulator and the wider industry are to provide more useful guidance and advice to the millions of people who desperately need it, ensuring broad support for any solution is essential.
“Ultimately, the success of the Advice Guidance Boundary Review will be judged on the outcomes consumers experience and the quality of help they receive under any reformed regime.
“If a solution is proposed but nobody is willing to offer it, then clearly there will be no consumer benefit – and the fact only 7% of advisers were interested in the proposed ‘core advice’ regime spoke volumes. That the FCA and government have established working groups representing both the industry and consumers as part of the Review should ensure any proposed solutions are both practical to implement and in consumers’ interests.”
“The Advice Guidance Boundary Review has the potential to radically improve the support savers and investors in the UK receive. As things stand, lack of clarity over that boundary, combined with strict rules which prevent personalisation of communications, mean millions of people are receiving only very generic help from firms when making often complex financial decisions.
“Consumer Duty and its focus on good consumer outcomes provides a unique opportunity to rethink the way financial guidance is delivered to people. The aim here has to be to maximise the support available to consumers of all means, with a recognition that most will be either unwilling or unable to pay a fee.
Chris Hill, CEO of Hargreaves Lansdown and FCA Practitioner Panel member has said: ‘Data and digital tools mean there is now a lot more we can do to nudge consumers to better investing behaviours. The clarity the FCA are bringing today on the advice boundary, and the commitment to review this, show that we can develop a new regime to ensure firms can do more to drive better consumer outcomes.’
Steven Cameron, pensions director, Aegon says: “We welcome the latest update from the FCA which provides more detail on the direction of travel of the advice guidance boundary review it is undertaking with the Treasury. We particularly welcome the FCA acceptance that the solution to supporting customers make informed financial decisions will not be met by changes to regulated advice alone. Advisers provide hugely valuable support to millions of individuals each year, but particularly since the Retail Distribution Review there has been a persistent advice gap. The current regulatory regime, with very limited options alongside full regulated advice, has created an even wider ‘support gap’, which has been exacerbated by the cost of living crisis.
“It’s imperative that advice services continue to thrive. But to complement this, there could be major benefits if those regulated firms who want to, were permitted to offer a new more personalised guidance service. This might allow them to support currently unreachable client groups, getting them on the road to good ‘Consumer Duty’ outcomes. And once these clients begin to appreciate the benefits, they’re much more likely to return to the adviser for full advice when they need it.
“We also welcome the FCA pausing consideration of its core investment advice proposals. While the aims of extending support were right, the rules were very narrow in scope and focus. Furthermore, with interest rates continuing to climb, it may be less appropriate right now to be seeking to encourage cash savers to switch to stocks and shares ISAs for the first time.”