Here he explains why…
The FAMR was jointly conducted by the regulator, the Financial Conduct Authority (FCA), and the Treasury, the UK government’s economic and finance ministry. The 85-page report made 28 recommendations, predominantly focused on improving consumer access to advice.
It acknowledged that “a number of factors, including the significant costs of providing face-to-face advice, mean that it may not be economical for firms to serve consumers with lower amounts to invest or with simple needs”.
Advice gap
This is tacit agreement – or at least acknowledgement – that the ever rising tide of regulation has led to a widening advice gap, and that something needs to be done to address this. A number of the recommendations are worthy of examination and comment I feel.
Regulated advice should be based on a personal recommendation in line with MiFID
This may seem a bit of a strange recommendation as any adviser in the UK, under present regulations, would automatically provide a personal recommendation. The purpose, however, is to be clearer as to what advice is.
For some time the advisory sector has been clamouring for the regulator to create and categorise “Simplified Advice” in order for it to potentially provide assistance to the mass market in a cost-effective way. In other words, simple advice for simple requirements with less compliance burden, whilst maintaining client protection. A sensible idea one might suggest.
Technology’s role
What this recommendation provides, however, is freedom for firms to offer other sorts of help – “information” or “guidance” perhaps – without falling, or at least drifting, into the area of regulated advice. That is not a simplified advice framework.
On the one hand, this makes sense to me. We need to use technology as much as possible to engage consumers with their financial planning needs and if we can inform (and even educate to a degree) without the cost of fully regulated advice then this should be a positive outcome for all stakeholders.
On the other hand, this only works, in my opinion, if the consumer is fully aware of the difference. If an investor believes that they are receiving advice, and assumes that this comes with the significant protections that regulated advice embodies (expertise, qualifications, redress, PI cover etc etc), only to find at a later stage – usually when things have gone wrong – that they only received information and guidance – and, effectively, made their own decision – this could lead to disastrous outcomes.
As one commentator put it: “It’s all very well to suggest no algorithm can produce a personal recommendation but there will be immense difficulty in making sure such an outcome doesn’t seem personal, particularly where the automated system is highly sophisticated”.
Consumer protection
Consumer perception is the key and, at the moment, surveys suggest that investors rarely understand the difference.
New guidance to support firms offering services that help consumers making their own investment decisions without a personal recommendation.
This is probably very much needed and obviously carries on, to some degree, from the first recommendation above. But there is a theme here and my concerns noted earlier are simply intensified by this suggestion.
