FCA review aims for clear boundaries between advice and guidance


The HM Treasury and Financial Conduct Authority (FCA) published their review of the financial advice market on Monday (14 March).

The review was launched in August 2015, in response to the growing gap between consumer demand for financial advice and guidance, and the industry's ability to meet that demand within the framework of FCA regulation.

Key proposals from the review include allowing early access to pension pots to pay for advice costs. Further, the review calls for clearer boundaries between advice and guidance to facilitate firms' delivery of services.

It calls for the Treasury to take a lead in the development of the pension dashboard. Financial guidance and advice should be promoted through the workplace, according to the review, and the advice market should be measured and tracked on an ongoing basis.


Excellent job

Commenting on the review, Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: "Our initial analysis is that the FCA and the Treasury have done an excellent job of deconstructing the myriad ways in which the investment industry has become unable to serve all its potential customers effectively.

"The most critical proposal is to simplify and clarify the boundary between advice and guidance; it should allow firms more latitude to deliver useful guidance without having to charge an advisory fee or worry about inadvertently straying into giving personalised advice."

Mr McPhail further encourages the development of clearer and simpler engagement through initiatives such as the pension dashboard.

"We're less convinced about extending the development process for advisers and the notion of 'streamlined' advice [financial advice which addresses typical mass-market questions, either through automated advice models or via pre-scripted questions, in a commercially viable way]," he adds.

"Where regulated advice is given, it should adhere to high standards; there is a risk that these proposals could undermine this extremely important principle and allow poor practices to creep back into the industry."

Simple definitions

Andy Bell, chief executive of AJ Bell, says: "The current spaghetti soup of definitions surrounding financial advice is a barrier to access, so the review is right to focus on this."

In a recent survey by AJ Bell, 51 per cent of its customers said they could not explain the difference between the service they would receive from a financial adviser compared to online guidance.

"Simple definitions that make it clear to people what they will get out of advice and guidance would help them understand the value in each and hence improve their engagement with both of them," says Mr Bell.

Pete Horrell, managing director UK at Fidelity International, comments: "Putting more thinking to a better definition of financial advice, and creating clarity on what constitutes generic assistance and [what counts as] a personal recommendation, are great steps forward.

"We are also pleased to see that more effort will be put into understanding the importance of automated advice models, the role of the employer in helping to engender a savings culture and a pension dashboard."


Bold proposal

Allowing consumers to access part of their pension pot early in order to fund the cost of advice is a bold proposal, according to Richard Freeman, chief distribution officer at Old Mutual Wealth.

"It will undoubtedly require careful legislation but if it allows more people to access at-retirement advice then this can only be a good thing, particularly considering the complexity savers face when they turn their retirement fund into an income," says Mr Freeman.

"Equally, making it more cost-effective for employers to contribute to the cost of advice will encourage uptake.' Freeman believes that 'the workplace can be the best environment to get people thinking about the need to build a financial plan".

Nick Hungerford, CEO at Nutmeg, welcomes a review of the definition of advice and the pension dashboard. "The review is alive to the need for more innovation to close the advice gap, and the necessity of bringing automated advice to customers," says Hungerford.

He hopes that the review's recommendation for a new unit to support the development of online automated advice will be realised.

However, he adds: "We are sorry not to have seen more in the review about transparency on fees and charges. We hear from customers daily about the obfuscation customers face when comparing advice and investment services in the market.

"There are far too many types of charges; charges are often not given in pounds and pence but only as percentages; and charges are often only available when upon request. We hope to see more done at the implementation phase to strip away complexity."

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