The Financial Conduct Authority is sounding out plans to create a simplified financial advice regime, which could make it cheaper and easier for customers to access professional advice on how to manage their money.
The focus of the FCA’s plans at this stage is relatively narrow, focusing on supporting individuals who might benefit from investing their excess cash savings into a stocks and shares Isa.
But eventually, the plans could see more firms, including high street banks and building societies, to start offering advice on such products outside of their existing services.
The FCA is hoping to increase access to financial advice via a new simplified advice regime
As part of the proposed scheme the FCA says it is looking at limiting the range of products covered by the advice regime, so it is easier for firms to deliver and customers to understand.
It will also enable for customers to pay for advice in instalments so they can avoid large upfront bills.
In the announcement the FCA said its recent Financial Lives survey found 4.2million people in the UK held more than £10,000 in cash savings and were open to investing some of it.
However, the proposals have raised concerns that the scheme will fail to get off the ground. Critics say it repeats the mistakes of previous attempts to offer simplified advice, in that the FCA’s plans fail to address financial advisors’ risk concerns.
Tom Selby, head of retirement policy at investment platform AJ Bell, says that the FCA tried something similar over a decade ago but ‘back then simplified advice failed to take off, in part because firms who offered simplified advice would have had to take on exactly the same level of liability as firms offering “full fat” advice.’
He also said that, under this previous plan, financial advisors offering simplified financial advice needed the same level of qualifications as those advising on complex financial products.
‘Under the 2011 version of simplified advice, minimum qualification requirements were also identical, regardless of how complex the recommendations were,’ Selby said.
‘While stripping back qualification requirements and creating a narrow set of investment options may be enough to tempt some firms into the market, the regulator will likely have its work cut out assuaging concerns about liability.
‘Ultimately if something goes wrong, it is the firm offering the advice – whether simplified or otherwise – that will be on the hook.’
What will low-cost financial advice look like?
Selby was sceptical about how much appetite there would be for simplified financial advice, saying that people could get similar information elsewhere.
He said: ‘Low-cost advice will likely only provide a partial solution for a relatively small subset of the population, with the majority relying on the information and guidance they receive from other sources to make good decisions when it comes to saving and investing.’
Others have said that while they welcome the move, it isn’t in itself enough to solve the ‘advice gap’.
The Investment and Savings Alliance has said that the existing laws which govern financial advice mean that any changes will be limited.
The non-profit organisation has supported Harriet Baldwin MP’s amendment to the Financial Services and Markets Bill, which would create a personal finance guidance regime that would allow firms to offer people who cannot afford advice, or choose not to take it, more specific guidance without fear of stepping the existing regulatory boundary between advice and guidance.
The bill is currently being scrutinised by parliament.
Where can you get financial advice or guidance?
There are a number of money services that offer broad-brush financial guidance, the government backed Money and Pensions service offers free and impartial money and pensions guidance.
However, for specific investment and savings questions you need to seek out a regulated adviser.
There are two types of financial advisers, the first is independent financial advisers (IFAs). They give unbiased advice about the whole range of financial products from all the different companies available
Second there are restricted advisers who give advice on a limited range of products. They may specialise in one area, for example pensions, or they may only offer advice on products offered by a limited number of companies.
It’s usually best to get independent financial advice so that you can look at the widest range of advice and products available.
It is also important to check that the adviser you choose is correctly regulated.
Citizens Advice says all financial advisers should be registered with the FCA. This means they meet the right standards and you get more protection if you’re not happy with the service.
They should also have achieved a Level 4 or above in the national Qualifications and Credit Framework and have a Statement of Professional Standing.
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