“It is essential that the fact-find process is as efficient as possible, while giving firms confidence that they have captured sufficient information. Therefore, this needs to be prescriptive and captured in [the FCA's] handbook rules.
“These proposals help to make simplified advice more commercially viable and could mean firms are able to support someone through their financial life cycle, starting with simplified advice and then, as their needs change, moving towards full advice.”
Although the proposed changes help move the industry closer to achieving a form of simplified advice, Davidson adds that it still requires significant investment in technology and new processes from the industry, and therefore an upfront cost for firms.
And with a personal recommendation being a key difference between the targeted support and simplified advice proposals, Davidson says this makes it more process-intensive and costly for firms to offer than targeted support to lower wealth segments.
Satisfying stakeholders
Michael Lawrence, a principal consultant at regulatory consultancy Bovill, likewise cites economics as one of several key factors likely to “make or break” a new simplified advice regime.
“Simplified advice needs to work from a commercial perspective. Previously, firms have struggled to create a compelling business case for a distribution model where the inherent costs can eclipse the modest returns produced by low fees and low investment amounts.
“The FCA has looked to tackle this by upping the amounts that can be invested, offering greater flexibility on how charges are levied, and ‘right-sizing’ the qualification requirements.
“This will undoubtedly help but whether it’s enough to tempt firms remains to be seen, especially when many firms are likely to view the review’s targeted support proposal as offering a more commercially attractive and less risky alternative.”
Besides the supply side, consumers are another consideration. “Forms of more streamlined advice exist already under the existing suitability regime,” notes Lawrence.
“Fintechs and established firms have developed a range of digital and hybrid advice models, which have suffered from limited take-up by consumers. Limiting factors are likely to include consumers’ understanding of the value of advice, their ability to shop around on price and quality, and their willingness to pay for advice.
“So the risk for firms is that even if they are able to build a compelling, high-quality simplified advice model, there is no guarantee consumers will follow.”
There is also the matter of political support. With the advice guidance boundary being jointly reviewed by the regulator and government, some in the industry have highlighted the importance of cross-party support.
