Advice – Simplified?

 The FCA has published proposals for a simplified advice regime, but don’t get too excited – just yet.



At the end of November 2022 the FCA issued another Consultation Paper – CP22/24 – the consultation period ends on 28 February 2023.

Its title – ‘Broadening access to financial advice for mainstream investments‘ – doesn’t exactly get pulses racing, but the proposals within it perhaps indicate the shape of things to come for investors with fairly straightforward needs.

Within its Financial Lives Survey last year, the FCA identified that over four million UK consumers hold £10,000 or more in investable assets, mostly in cash. The regulator asserts that many of these people have some appetite for investment risk and that they have concerns that harms are being caused due to the impact that inflation will have on these savings.

The FCA states that evidence suggests that many of these consumers would value a personal recommendation to gain confidence in investing, so the consultation is aimed at providing these consumers with access to simplified advice on investment into mainstream products, specifically Stocks and Shares ISAs, and to offer a proportionately simplified regulatory regime for advice firms.

Depending upon your viewpoint, RDR did or did not create an advice gap, whereby those with simpler needs and less cash could not effectively afford advice, so maybe this new regime is intended to address this. We’ll see.

As is the norm, the FCA uses a lot of words to put matters in context, but when condensed, the new proposals proffer the following:

  • The new regime will restrict advice to new Stocks and Shares ISAs only up to the annual ISA allowance limit of £20,000, including transfers from Cash ISAs of up to £20,000. The FCA terms this ‘core’ investment advice.
  • ‘Core’ investment advice will limit the list of qualifying investments that can be held in a S&S ISA. The limitations will be outlined in updates to PROD, but will exclude certain ‘higher risk investments’ which the FCA deems inappropriate for core transactional advice – listed shares and other esoteric investments, but broadly, investments that can be held within a GIA.
  • The new regime proposes to allow Trainee Advisers (those not yet deemed competent) to provide Core investment advice under appropriate supervision, however, the CP appears to be proposing relaxing the qualification requirements. Ordinarily, advisers must be qualified to QCF Level 4, but the FCA is proposing that holders of Financial Services, Regulation and Ethics (CII RO1 equivalent) and Investment Principles and Risk (CII RO2 equivalent) will be able to provide Core advice only.
  • To accommodate the above, the FCA is planning to make changes to the TC Sourcebook and strengthen supervisory and SM&CR requirements. New advisers providing Core advice will be subject to the Conduct Rules and fit and proper assessments.
  • Similar proposals apply for ARs and the Approved Persons Regime.
  • Given that investment is limited to £20k, FCA expects that in the main, most business of this nature will be handled on a transactional basis. They do not prescribe here, but they expect the Core advice should be delivered at lower cost than holistic advice. PRIN 2A.4 – Consumer Duty price and value features prominently here!
  • Firms will be required to maintain specific data sets for Core advice – mainly sales volumes and charges for Core advice.

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Our View

An interesting development which could be a sign of acknowledgement of an advice gap. A simplified advice regime has long been on many advisers’ wish lists, but this doesn’t really deliver that beyond new S&S ISAs (not top ups) and firms would be well advised not to consider this a green light to streamline their advice process – FCA has been at pains within the latest Consumer Duty correspondence to confirm that it will take action against firms trying to over simplify delivery of advice. The slight relaxation of qualification requirements will help to bring on the next generation of advisers, so this could be seen as a positive step.

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For information only at this stage, but something to keep a close eye on.
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About the Author

Paul has in-depth experience across a wide spectrum, having headed up compliance, T&C, monitoring, oversight and MLRO functions previously. He was also an IFA for some time so can see things from more than one angle.

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