The difficulties with this approach rest with
- what data points are needed to determine if someone falls within a target market or not; and
- should targeted support apply to existing products – identifying for a customer that they should reconsider an existing investment – or should it include new products.
3 Simplified advice
The FCA's third proposal is to create a simplified advice regime (building on proposals from November 2022).
The framework for simplified advice would differ from targeted support to the extent that a consumer obtaining simplified advice would be advised by way of a personalised recommendation – ie we recommend this to 'you'.
The idea is that simplified advice focuses on one specific need and so does not involve an analysis of a customer's circumstances that are not directly relevant to that need.
Advice on pension decumulation decisions would be excluded from simplified advice under current proposals.
The need to encourage the advice industry and consumers to provide and obtain advice is clear.
The paper includes such stats as 59 per cent of defined contribution pension holders aged 45 and over agreed in May 2022 that their pension was insufficient to live on in retirement; and consumers do not often understand all of their investment options and make uninformed decisions, with 36 per cent of DC pension holders aged 50 to 69 not having heard of income drawdown.
The need is there, but will the industry endorse the proposals?
What could hold firms back?
The paper acknowledges at the outset that "it is the role of government to create a proportionate regulatory environment to enable firms to provide innovative solutions…it will be necessary for both firms and consumers to learn to manage risk, rather than eliminate it".
Financial services law is underpinned by the concept that consumers should take responsibility for their own investment decisions.
But firms are concerned that
- providing advice that is less than holistic advice still comes with the risk of being held responsible for a customer's investment decisions and being held responsible as if they had provided holistic advice; and
- whether firms can operate the FCA's suggestions from a commercial perspective given that information/guidance does not tend to involve any charge and any simplified advice would have to attract a smaller charge to holistic advice.
The paper recognises the risk that firms open themselves up to complaints, particularly before the Financial Ombudsman Service.
The Fos risk to firms is a real one; for all complaints that are referred to Fos on or after April 1 2023 about acts or omissions by firms on or after April 1 2019, redress awards are capped currently at a considerable £415,000.
This begs the question, with redress limits at such a significant amount, do the benefits of providing non-advised financial support outweigh the risks?
Since the paper there have been three recent Fos decisions involving the firm True Potential.
Broadly, the complainants alleged that True Potential's communications containing an offer constituted regulated advice. True Potential argued that the service was non-advised.
Two complaints were upheld by Fos and in finding against True Potential, the ombudsmen looked far beyond the actual communication, and taking the circumstances in the round, found that advice had been provided.
The decisions state that the actual offers, when considered in isolation, may not have amounted to advice, but when considered within the context of wider communications and the previous advisory relationship between the advisers and the consumers, the offer was found to have constituted regulated advice.
