Broadening access to financial advice

In the most significant regulatory intervention in the advice market since the implementation of the Retail Distribution Review (RDR) over 10 years ago, the FCA has published a consultation paper (PDF 1.25 MB) designed to make financial advice more accessible to the mass market. The move is designed to address the “advice gap” — the difference between those that want to access advice and those that are willing and able to afford it.

The proposed new regime forms part of a larger FCA review into the appropriateness of the advice landscape which also includes revisiting the current advice and guidance boundary. It was re-confirmed in the government’s Edinburgh Reforms, providing certainty that it will be prioritised by the FCA. This is reassuring, especially given the strong alignment with the FCA’s Consumer Duty initiative.

The FCA's overarching review presents a significant opportunity for the sector. It could make advice more accessible to mass market customers whilst providing others with more tailored support and nudges to enable them to make better informed decisions. If both aspects prove successful, it would have a transformative effect on the advice gap and on outcomes for retail customers.

The proposal was driven by the FCA’s Consumer Investments Strategy published back in September 2021. The aim of this consultation is to allow firms to provide those with straightforward financial needs greater access to simplified advice on investments (such as stocks and shares ISAs).

The new proposed advice regime, referred to as 'core investment advice', would benefit from a lighter regulatory touch — something that it was not afforded when simplified advice was introduced initially. When firms historically looked to develop simplified advice propositions, they tended to be able to get them to work either compliantly, or commercially — but not both. Therefore, reducing the regulatory burden has a significant impact on the viability and attractiveness of this proposal.

The proposed new regime will have the following distinct features:

• Suitability — although the same standards will apply, the core regime will be supplemented by new guidance. This will provide firms with greater clarity and certainty about how to apply the suitability requirements when providing core investment advice
• Training and Competence — core investment advice will be able to be provided with a lower qualification requirement
• Product Governance — current requirements will still be applicable but there will be a limitation of the range of investments that can be recommended under the core regime (e.g. Restricted Mass Market Investments and Non-Mass Market Investments could not be recommended)
• Restricted versus Independence advice — although the range of products to be recommended under the core regime will be limited, the FCA proposes to add an additional rule to allow core advice to be classified as independent advice. This is designed to allow firms that only offer independent advice to also provide core advice without breaching existing requirements
• Fees and Charges  — new scope to allow for the payment of investment advice charges via instalments (rather than a lump sum upfront)
• Marketing and Disclosure — new guidance relating to disclosure of the scope and nature of core investment advice to ensure customers are aware of advice limitations
• Permissions and Oversight — no new regulatory permission required (it would remain contained within advising on investments). However new record keeping obligations, specifically for core investment advice, would be introduced.

The government’s ‘Edinburgh Reforms’ included the FCA’s previously announced intention to review its advice and guidance boundary. This has been a longstanding issue and the FCA has sought to provide greater clarity on the boundary on a number of occasions — without much tangible success. The reforms stated that the government will work with the FCA as it (re)examines the issue of the appropriateness of the boundary with the aim (again) of seeking to improve access to helpful support, information and advice — while maintaining strong protections for consumers.

It is still too early to know the materiality of the FCA’s ambition — specific proposals will be published in 2023. However, the outcome is likely to be different from prior attempts. Importantly, any further clarifications or amendments will be made under a post-Consumer Duty environment. There is an exceptionally strong alignment between this initiative and the incoming Consumer Duty. This will provide a fresh impetus for firms to explore new opportunities to design propositions that deliver good customer outcomes — set against clearer regulatory expectations. Therefore, there is likely to be significant interest in how the boundary is developed and, consequently, the potential for firms to innovate in this space is significant.

The core investment advice proposals and the confirmed review of the advice/guidance boundary are both at preliminary stages. However, they present a fantastic opportunity for firms to engage in the process of developing a regulatory landscape that is more conducive to the needs of certain retail consumers. Firms are keenly anticipating the FCA’s 2023 paper on the advice/guidance boundary to gauge the level of the FCA’s ambition to make material changes to this sector and how it operates.