The recommendations have been broken down into three areas, and key highlights include:
Affordability
- HMT should consult on amending the definition of regulated advice in the existing Regulated Activities Order so that regulated advice is based upon a personal recommendation, in line with the EU definition set out in MiFID.
- The FCA should consult on new guidance to support firms offering services that help consumers making their own investment decisions without a personal recommendation. This should include a series of illustrative case studies highlighting the main considerations firms need to take into account when developing such services and dealing with specific areas of uncertainty identified during the Review.
- The Review recommends developing a clear framework that gives firms the confidence to provide streamlined advice on simple consumer needs in a proportionate way. As part of this, the FCA should produce new guidance to support firms offering ‘streamlined advice’ on a limited range of consumer needs. This should include a series of illustrative case studies highlighting the main considerations when developing such models.
- The FCA should build on the success of Project Innovate and establish an Advice Unit to help firms develop their automated advice models.
Accessibility
- HMT should explore ways to improve the existing £150 income tax and National Insurance exemption for employer-arranged advice on pensions.
- HMT should explore options to allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice.
- HMT should challenge the industry to make a pensions dashboard available to consumers by 2019, bringing together industry and consumer representatives to help them set direction and drive progress.
- The Financial Advice Working Group should publish a shortlist of potential new terms to describe “guidance” and “advice”, with the final choice of words and approach to implementing them to be confirmed after market research and consumer testing.
Liabilities and consumer redress
- FAMR recommends that the FCA's 2016 FSCS Funding Review, should specifically explore risk-based levies, reforming the FSCS funding classes, and more extensive use of the FSCS credit facility.
- Following its review of FSCS funding, in light of evidence received as to the impact of the professional indemnity insurance market on FSCS funding, the FCA should consider whether to undertake a review of the availability of PII cover for smaller advice firms.
- The Financial Ombudsman Service should consider whether to establish a more visible central area for firms on its website by summer 2016, bringing existing resources (e.g. summary of approach, technical guidance notes, case studies etc) together in one place to help advisers.
- The FCA should not introduce a longstop limitation period for referring complaints to the Financial Ombudsman Service. As part of the review in 2019, the FCA and HMT will consider any ongoing trends and the impact of the Financial Ombudsman Service’s complaints data relating to advice on long-term products.
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, said:
“Our initial analysis is that The FCA and the Treasury have done an excellent job of deconstructing the myriad ways in which the investment industry has become unable to serve all its potential customers effectively. For many, it had become an increasingly dysfunctional system with providers withdrawing from the market and consumers not getting access to the services they required.
"The most critical proposal is to simplify and clarify the boundary between advice and guidance; it should allow firms more latitude to deliver useful guidance without having to charge an advisory fee or worry about inadvertently straying into giving personalised advice.
"Overall this is good news for investors; over time they should find the investment industry more accessible. The development of clearer, simpler engagement, through the Dashboard, the Pension Passport, rules of thumb and with shorter suitability reports, will all help to reinvigorate consumers’ experience of dealing with the industry.
"We’re less convinced about extending the development process for advisers and the notion of ‘streamlined’ advice. Where regulated advice is given it should adhere to high standards; there is a risk that these proposals could undermine this extremely important principle and allow poor practices to creep back into the industry."
Steven Cameron, Pensions Director at Aegon UK, commented:
“We welcome the recommendation that ‘advice’ is redefined to cover only those services which include a personal recommendation. This is a first step towards addressing the widespread customer confusion around the differences between advice, personal recommendations and guidance.
“But as well as regulatory definitions, we need to develop clear, intuitive communications that truly resonate with customers, rather than compliance technicians. This will help differentiate between advice and other guidance services that stop short of recommending a particular course of action.
“It’s also important to make clear where personal responsibility lies under each approach, and what protections the customer has if things go wrong. Clear customer explanations will help individuals choose which support option they need and will also help highlight the value of professional advice with a personal recommendation.
“The renewed focus on streamlined advice is also welcome. Many individuals do not want full holistic advice across all of their needs and fuller recognition of a ‘streamlined’ or ‘focussed’ advice service on a particular need will allow unnecessary costs to be removed, making this option more cost-effective for advisers to offer and more attractive to a wider range of consumers.
“While many individuals will continue to want some human engagement, an openness by the FCA to allow the industry to innovate around digital guidance creates opportunities to reach far more customers. This, alongside looking at the workplace as a means of delivering support are positive steps forward to helping close parts of the ‘advice gap’.
“Aegon is a strong supporter of the benefits a ‘pensions dashboard’ would bring, allowing individuals to see information on all of their pensions in a single place, using digital technology. We are pleased the report recognises the role the Treasury can play in championing this industry initiative.”
Nick Hungerford, Nutmeg CEO, added:
"The Review makes an overdue call for a new definition of financial advice. We agree that the UK's advice definition should fall into line with MiFID's, and we are glad to see more space opening up for firms to give customers generic information and guidance about financial products without having to burden the customer with a lengthy on-boarding questionnaire. This can often deter those looking for advice and end up being unnecessary for the circumstances, as well as providing an excuse for advisors who do not want to serve clients with more humble means.
"We are sorry not to have seen more in the Review about transparency on fees and charges. We hear from customers daily about the obfuscation customers face when comparing advice and investment services in the market. There are far too many types of charges; charges are often not given in pounds and pence but only as percentages; and charges are often only available when upon request. We hope to see more done at the implementation phase to strip away complexity."
