Simplified advice. It is one of three proposals the Financial Conduct Authority and Treasury have conjured up to fill the advice gap in the UK and is oft debated, attracting scepticism and evangelism in equal measure.
At the Association of British Insurers, we are supportive of a new simplified advice regime to provide confidence, reassurance, and a human touch for those unable or unwilling to pay for holistic financial advice, but who still need a personal recommendation to take one-off decisions on their finances.
We said as much in our response to the FCA and Treasury’s policy paper last week, with a few additional suggestions: that decumulation decisions should be within the scope; the investment limit raised; and aspects of the regime to be set out in rules rather than guidance.
But the FCA has tried simplified advice-type reform before, and yet the advice gap remains. Why is that? Why should we expect such a regime to be successful now when it hasn’t necessarily worked out in the past?
To find out, we spoke with five of our members and seven ex-regulators and consumer advocates who were involved in previous reviews in late 2023. We hoped that the lessons we learned could be helpful for FCA and Treasury officials working on the current attempt at simplified advice.
Our one-hour interviews covered the impact of the Retail Distribution Review and the Financial Advice Market Review on the advice market; the application of basic, streamlined, and abridged advice; the role of technological innovation; liability, and much more.
Seven key findings emerged from the discussions; these were the common threads pulled out from a tapestry that included simplified advice sceptics and proponents.
Co-ordination needed
Government needs to be co-ordinated, with the Treasury and FCA working together on a timeline that does not rush review outcomes.
Interviewees commented positively on the collaboration embedded within the current Advice Guidance Boundary Review.
Consumer duty
The consumer duty is a positive step forward. It encourages firms to do more to support consumers, leading to less reliance on disclosures and better design and understanding of target markets, which can simplify the information to be collected to provide advice to a specific segment on a specific need.
Consumer understanding
Consumer understanding is a challenge, both in terms of encouraging demand, as people don’t understand what advice is and so don’t see its value, and attempting to delineate between holistic financial advice, simplified advice and financial guidance.
Commercial viability
Commercial viability can be tricky but there is hope. Removing parts of the suitability assessment and fact-find may not reduce cost significantly. But lower-cost advice processes have been achieved, for example basic advice, focused advice and abridged advice.
Technological drivers, such as artificial intelligence-powered tools, open finance, and pensions dashboards will help – assuming customers are willing to engage with them.
Digitisation
Robo, digital-only channels are not the whole solution.
