Written by Tom Selby, head of retirement policy at AJ Bell
The FCA has hopped in its DeLorean and gone Back to the Future with plans to create a new simplified advice regime. It is over a decade since the regulator, then called the ‘Financial Services Authority’, set out final guidance on the first version of simplified advice, designed to accompany the Retail Distribution Review (RDR) reforms.
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. Under the 2011 version of simplified advice, minimum qualification requirements were also identical, regardless of how complex the recommendations were.
In bringing simplified advice back from the dead, the FCA wants to make a dent in the advice gap by encouraging more firms, no-doubt including major high street banks and building societies, to step into the advice market. In turn, the regulator will be hoping more people will take advice and invest for the long-term, rather than stashing their savings in cash and risk seeing it eroded away by inflation.
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.
The role of guidance
If the FCA is able to encourage more people to take good quality advice and invest for the future through this simplified advice initiative, that would be a good thing. However, it is important this isn’t somehow viewed as a one-and-done solution to the advice gap challenge.
Even if simplified advice takes off, there will be millions of savers and investors who either can’t afford to pay for advice or choose not to take it, or both. 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.
It is therefore critical that policymakers are focused on ensuring both the advised and non-advised parts of the market are able to support people as much as possible.
Lack of clarity over the advice/guidance boundary remains a significant challenge in providing useful information to those who choose not to take advice, and it is important the FCA carries out the promised review of these challenges as soon as possible.
However, it is possible the Government will take charge of the situation. An amendment to the Financial Services and Markets Bill put forward by Harriett Baldwin MP, chair of the Treasury Committee, could see a new personalised guidance regime created.
This has the potential to significantly improve the way guidance is delivered to savers and would likely benefit a much larger group of people than simplified advice.