PIMFA, the trade association representing wealth managers and financial advisers across the UK, has issued its response to the Financial Conduct Authority’s (FCA) consultation on Simplifying the Pensions and Investment Advice Rules.
PIMFA supports the intent behind the FCA’s proposed changes to suitability, along with a number of proposed changes to the simplified advice and ongoing advice services regimes. However, PIMFA has raised concerns about how the changes to suitability will impact firms providing holistic financial advice.
Simon Harrington, Head of Public Affairs at PIMFA, says: It is right that the FCA has sought to address some of the structural barriers which prevent firms from making meaningful progress towards closing the UK’s financial advice gap – their ambition is welcome.
“The repositioning of ‘necessary’ information to ‘sufficient’ when determining suitability not only marks a significant departure from the current rules, and in theory removes some of the existing frictions which exist in the current advice process. Whilst we support this change, in that it gives firms more flexibility within their current propositions, it is less clear that this will lead to the development of simplified advice propositions among established financial advice firms in the manner the FCA might wish.”
“Ultimately, we see issues with these proposals which begin in the envisaged consumer journey, in particular how firms can come to the conclusion that an inidividual might benefit from a simplified form of advice without undertaking a holistic fact find. Without clarity on this issue, the repositioning of the advice rules, welcome as they are, risk being rendered less impactful in practice.
“Clear guidance is needed on the scenarios where ‘sufficient’ information could be used to deliver a simpler form of advice, and how this differs from ‘necessary’ information in the current framework. The FCA must also set clear expectations for firms in instances where they become aware of information not material to the delivery of limited scope advice, but which could have wider implications for the client’s broader financial circumstances.
Other key points raised by PIMFA in its consultation response include:
- Ongoing advice: PIMFA believes the FCA has provided firms with the flexibility needed to deliver a good value ongoing service to clients whilst giving them the scope to design innovative propositions for different segments of clients in the future. Giving firms the flexibility to deliver periodic suitability assessments in line with consumer needs marks a significant step forward and a departure from homogenous propositions which centre solely on the delivery of an annual review. However, greater clarity is needed around the regulator’s supervisory expectations, what it considers to be ‘good’ and ‘poor’ practice and how the impact of these changes will be monitored.
- Legacy trail commission: PIMFA welcomes the FCA opening a discussion around legacy trail commission arrangements. PIMFA strongly believes the existing arrangements should be maintained, as removing them would represent a significant undertaking for the industry, with many firms facing considerable structural barriers around data and record keeping. Removal could also leave clients in a worse financial position, as historic trail commission rates are significantly lower than established ongoing adviser charges as well as the risk of clients incurring unnecessary tax charges due to changes in the charging structures of their product holdings.
Simon Harrington adds: “Closing the financial advice gap requires a full continuum of support which can support consumers at every stage of their financial lives. These reforms have been set out with clear intent to drive better outcomes, and the FCA deserves credit for its collaborative approach and clear display of ambition.
That said, some uncertainty remains, and the regulator must go further to address key structural barriers holding back progress. With some refinements, particularly to the proposed suitability requirements and the guardrails for simplified advice, we believe these changes can drive genuine progress.”
PIMFA’s consultation response is available in full here: https://www.pimfa.co.uk/pimfa-consultation-responses/simplifying-the-pensions-and-investment-advice-rules/
