The Financial Conduct Authority’s Advice Unit is a special support unit to help firms launch automated advice models that provide a personal recommendation or discretionary investment management services. It has been put in place to help address perceived gaps in services available to consumers seeking advice or assistance with investments; pensions (accumulation and decumulation); and protection products. It covers services using either partial or full online delivery as well as other uses of technology that result in the availability of advice with a lower base cost for consumers and open competition in this sector.
This briefing outlines how to use the Advice Unit (including the eligibility criteria), as well as the support offered by the FCA through the Unit.
Using the Advice Unit
The Advice Unit has offered two application periods: 1) from 31 May to 1 July 2016; and 2) 3 January to 3 February 2017. Further application periods are expected.
To request support firms must complete a standard application form, although it is clear that, as part of the application process, the FCA may seek additional information from applicants.
Firms must meet certain eligibility criteria. While the FCA does not expect the model to be completely formed, the proposal must be more than a theoretical concept at the point of application.
For the first application period the FCA decided 9 out of 19 applicants met its eligibility criteria.
As part of the eligibility criteria, firms must:
- be conducting or looking to conduct regulated business in the UK financial services market;
- be able to confirm that its automated advice model will provide consumers with a personal recommendation or a discretionary investment management service;
- consent to the FCA publishing anonymised material based upon its interactions and any regulatory feedback provided; and
- treat any regulatory feedback provided by the Advice Unit confidentially and not to disclose it to third parties without the FCA’s prior consent.
Additionally, the FCA sets out a schema of negative and positive indicators for a firm to show:
- potential to deliver lower cost advice to unserved or underserved consumers (e.g. the model caters for consumers who do not have significant wealth or income rather than serving a niche customer base or target market analysis is not clear);
- potential to deliver genuine consumer benefit (e.g. the lower cost of advice must not be offset by charging higher product costs to consumers);
- an automated advice proposition (e.g. this may be full or partial automation at core stages of the customer experience, such as: fact find, risk profiling or suitability assessment) that provides a personal recommendation or discretionary investment management service;
- a proposition with clarity (e.g. a well defined proposal with clear indicators of customer journey, benefits and risk mitigation proposals);
- it serves a specific sector (investments, pensions, protection, see above. Firms with innovative advice models in other sectors are steered towards the FCA’s Innovation Hub for support.); and
- a clear need for additional regulatory input (e.g. the scheme poses regulatory questions that are novel or difficult to resolve through existing FCA rules and guidance).
The FCA does not envisage reducing any consumer protections (unlike its sandbox approach, for example); therefore, firms must still meet threshold conditions requirements. Firms’ senior management remain responsible for ensuring they adhere to the relevant regulatory requirements.
Support and feedback
The FCA’s Advice Unit will support firms with two forms of regulatory feedback:
- Individual regulatory feedback – if the firm meets the Advice Unit’s eligibility criteria; and
- Published resources for all firms – to be developed incrementally as the FCA’s understanding of firm needs develops.
The aim is to assist the firm with understanding the regulatory implications of its advice model. Consequently, individual feedback will be somewhat tailored to the needs of the applicant and support provided by the Advice Unit may include:
- an initial meeting with the Advice Unit and other specialist areas of the FCA (as required) to discuss the proposition;
- ongoing engagement with a dedicated point of contact within the Advice Unit to provide regulatory input at agreed milestones;
- specific feedback on the regulatory implications of the model using the tools available to the FCA. This could include: follow-up meetings with relevant FCA staff to discuss specific issues, informal steers, and potentially individual guidance; and
- end to end authorisations support.
As part of this, firms may also ask the Financial Ombudsman Service for input on factors it may take into account when considering a potential complaint relating to advice given through an automated model. This is quite novel and may help give an additional perspective.
For a non-tailored offering, the Advice Unit will develop resources which should be useful to all firms providing financial advice. These will develop incrementally to allow the tools and resources to be informed by insight gained from work with individual firms. Resources potentially available include, by way of example:
- anonymised reports to the industry setting out the key lessons learned from the Advice Unit’s work with individual firms;
- standardised testing scenarios to be used to assess the effectiveness of automated advice models;
- a bespoke advice model authorisations guide; and
The FCA (see speech by Woolard 10/4/2017) will extend the Advice Unit to take in mortgages, general insurance, and debt sectors as well as those providing guidance rather than regulated advice (see proposed RAO changes below).
The Advice Unit is a response to the Financial Advice Market Review.
HM Treasury published (February 2017) revisions to the Regulated Activities Order (RAO) (SI 200/544) amending the definition of financial advice for the purposes of article 53 of the RAO (see SI 2017/500); effective from 3 January 2018.