The FSA has published a speech given by Sheila Nicoll (Conduct Policy Director, FSA) which is entitled Simplified Advice.
In her speech Nicoll examines why Simplified Advice is seen as potentially important, what the FSA’s role might be, as regulator, in relation to its development, and what some of the main issues are with the development of Simplified Advice in the market place.
Nicoll states that the FSA does not believe that there should be a separate regulatory regime for Simplified Advice. A separate regime would have to sit outside the Markets in Financial Instruments Directive (MiFID) and given that a “personal recommendation” is involved the FSA does not believe this to be a feasible option. However, the FSA has said in a previous Feedback Statement that it is possible to deliver Simplified Advice within the existing regime.
According to Nicoll the FSA does believe that it has an important role to play if Simplified Advice is going to emerge. It is for this reason that the FSA has carried out consumer research, to find out what consumers actually want. The FSA has also had a large number of meetings with firms on a one-to-one basis about Simplified Advice models that they have been individually developing.
In relation to the main issues around Simplified Advice Nicoll states that there are a number of questions that need to be considered:
- How is the process going to be delivered?
- What is the right portfolio of products?
- What safeguards are there for consumers?
- What level of skills and training is needed by an adviser?
- What regulatory issues might impact on the development of Simplified Advice?
On delivery there are a number of options. Simplified Advice could be delivered through an internet-based solution, over the telephone or face-to-face. Nicoll states that it must be the case that the nature of Simplified Advice is clearly explained to the consumer at the outset and should be designed to filter out those at the start of the process for whom it may not be appropriate. It will also be necessary to ensure that there is a process in place that drops people out if it is subsequently established that Simplified Advice is not the right process for them. The requirements for Simplified Advice mean that an adviser should not be able to divert from the process. This means that there needs to be in place some decision tree or structured process which may be suited to Simplified Advice to keep the process clear and clean. On the filtering process Nicoll states that the FSA does not have a firm view on portable fact-finds. However, it is one area where the FSA stands ready to consider how it could be delivered, recognising the potential advantages in encouraging consumers to shop around.
On Simplified Advice and the simple products delivered, Nicoll argues that a centrally-held product list could stifle innovation and could mitigate against some providers. However, she also acknowledges that it could provide some certainty for firms who are concerned that they might fall foul of a mis-selling accusation if the products are deemed too complex in any subsequent complaint. Nicoll believes that the FSA should continue to work with industry to explore what looks right in this context.
Nicoll notes that there has been much discussion regarding the appropriate level of professional standards for Simplified Advice. The FSA is aware of firms’ concerns about whether simplified processes can be commercially viable if a full level QCF level 4 qualification is required. The FSA is waiting for industry to respond with a developed Simplified Advice qualification proposition.
Nicoll stresses that the FSA would expect Simplified Advice to conform with the rules on Adviser Charging. One important element of the new Adviser Charging rules, which could affect Simplified Advice, is the ban the FSA has put in place on factoring. From 2013, the FSA’s new rules ban product providers from advancing to adviser firms charges that they have yet to collect from the customer. The new rules also prevent adviser firms from accepting offers of this sort. The FSA sees the ban on factoring as important in order to remove the potential for bias, which could arise if some product providers were prepared to advance their future income streams at favourable rates.
Nicoll confirms that the FSA would expect the supervision of Simplified Advice to be proportionate. In the FSA’s Feedback Statement of November 2008 it stated that:
“The guidance makes clear that the suitability standard is flexible relating to the type of service: “the nature of the Suitability Obligation and the range and level of detail of information required from clients will depend on the type of service being provided and the nature of the client. Firms will therefore have flexibility in meeting the objectives of the rules on suitability, taking into account the nature and extent of the service being provided and the client…….”
View Simplified Advice, 18 May 2010