The Financial Conduct Authority is polling plans to introduce a simplified financial advice regime, making it cheaper and easier for clients 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 could benefit from investing their excess cash savings in stocks and shares of Isa.
But eventually, the plans say more companies, including major banks and building societies, could start providing advice on such products outside of their existing services.
The FCA hopes to increase access to financial advice through 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 advisory regime to make it easier for companies to supply and for customers to understand.
It also allows clients to pay for advice in installments so they can avoid high upfront bills.
In the announcement, the FCA said its recent Financial Lives survey showed 4.2 million people in the UK had more than £10,000 in cash and were open to investing some of it.
However, the proposals have raised concerns that the scheme will not take off. Critics say it repeats the mistakes of previous attempts to provide simplified advice, in that the FCA’s plans fail to account for the risks posed by financial advisors.
Tom Selby, head of pensions policy at investment platform AJ Bell, says the FCA tried something similar more than a decade ago, but simplified advice failed to take off at the time, in part because companies providing simplified advice had exactly the same level of liability as firms who give “full fat” advice.’
He also said that under this previous plan, financial advisors offering simplified financial advice would need the same level of qualification as those advising on complex financial products.
“Under the 2011 version of simplified advice, the minimum qualification requirements were also identical, regardless of how complex the recommendations were,” Selby said.
While removing qualification requirements and creating a limited number of investment options may be enough to entice some companies into the market, the regulator will likely have to do its job to address liability concerns.
‘In the end, if something goes wrong, it is the firm that gives the advice – simplified or not – that bears the brunt.’
What is the advice gap?
There are several definitions of the advice gap and four main types as identified by Citizens Advice. In 2015, the organization found that as many as 10 million people who believe they would benefit from free advice are unaware of public financial guidelines.
The affordable advice gap refers to clients missing out on financial advice because they want advice but are unwilling to pay at current rates.
The free advice gap affects people who want advice but cannot afford it and the awareness gap affects those who do not know that advice is available or where to find it.
Finally, the preventive advice gap refers to people who would benefit from preventive advice.
What does cheap financial advice look like?
Selby was skeptical about how much hunger there would be for simplified financial advice, saying people could get similar information elsewhere.
He said: ‘Cheap advice is likely to provide only a partial solution for a relatively small subgroup of the population, with the majority relying on the information and guidance they receive from other sources to make sound decisions when it comes to saving and investing. ‘
Others have said that while they welcome the move, it alone is not enough to solve the “advice gap.”
The Investment and Savings Alliance has said that the existing laws governing financial advice mean any changes will be limited.
The nonprofit supported MP Harriet Baldwin’s amendment to the Financial Services and Markets Bill, which would create a personal financial guidance regime that would allow companies to help people who can’t afford advice or choose not to take it. , to provide more specific guidance without fear of crossing the existing regulatory boundary between advice and guidance.
The bill is currently being considered by parliament.
Where can you go for financial advice or guidance?
There are a number of money services that provide broad financial guidance, the government backed money and pension service offers free and impartial money and retirement guidance.
However, for specific investment and savings questions, you should consult a regulated adviser.
There are two types of financial advisors, the first being independent financial advisors (IFAs). They provide unbiased advice on the full range of financial products from all the different companies available
Second, there are limited advisors who provide advice on a limited range of products. They may specialize in one area, for example pensions, or only advise on products offered by a limited number of companies.
It is 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 advisor you choose is properly regulated.
Citizens Advice says all financial advisors must be registered with the FCA. As a result, they meet the right standards and you get more protection if you are not satisfied with the service.
They must also have achieved Level 4 or above in the National Qualifications and Credit Framework and have a Certificate of Professional Status.
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