FCA confirms simplified advice proposals

The FCA is consulting on how to make it easier for firms to give more simplified forms of individualised financial advice to consumers.

The regulator says simplified forms of advice can help consumers with more straightforward needs that do not require a full assessment of all their financial circumstances, making it more accessible and affordable.

It noted that firms are already able to provide more simplified forms of advice but not many offer it. As a result, the FCA is proposing to make "small changes while maintaining appropriate consumer protections", which it believes can revitalise the sector.

The changes include moving from a fixed annual suitability review to periodic reviews based on clients’ needs, giving firms greater flexibility in how they design and deliver ongoing advice services.

The regulator will also simplify and consolidate the suitability framework into one set of common rules and expectations and clarify existing flexibilities in suitability rules with an expectation that advisers consider ‘sufficient’ information.

The FCA also confirmed that it is starting a discussion about the future of trail commission to "modernise the rules and to prevent potential consumer harm".

Qualification standards for advisers will remain unchanged and the FCA is not proposing to change the adviser charging rules. Advice will still need to be paid via agreed-upon adviser charges rather than provider-paid commission or through cross-subsidisation.

In addition, from April some financial firms will be allowed to offer targeted support and suggest products to consumers based on what they would recommend to those in similar circumstances.

While targeted support will enable support to be given to groups of consumers, the FCA stressed that many consumers will need or value individual advice tailored to their specific circumstances.

Sarah Pritchard, deputy chief executive of the FCA, said: "For too long the support people need to make important financial decisions has been out of reach for many.  

"A market that provides good quality, lower cost simplified advice alongside comprehensive financial advice and targeted support will better support people making decisions about their financial lives. We want to see more people getting supported, who aren’t currently, and a market that innovates and offers tailored services to meet differing consumer needs.

"We welcome everyone’s views on whether our proposals will achieve our aim of building firms’ confidence to offer a wider range of advice and ultimately to help consumers navigate their financial lives."

Simon Harrington, head of public affairs at PIMFA, commented: “The FCA’s decision to clarify and update its requirements for firms delivering ongoing advice services is extremely welcome.

“Giving firms the flexibility to deliver periodic assessments in line with consumer needs will encourage firms to develop new, innovative propositions for different client needs. These proposals - and the accompanying guidance - should give firms the confidence they need to continue delivering high quality financial advice on an ongoing basis.

“While this represents meaningful progress, it is too early for us to judge how firms will respond to the proposals for simplified advice will be greeted as warmly. We continue to take the view that it will only be attractive to firms who can offer it in a way that is commercially viable - this means looking at adviser qualifications. We note the FCA’s clarification of its expectations for trainees who have not yet fully qualified on this matter.

“We also note the FCA’s decision to look more closely at trail commission. In doing so, we welcome its intention to properly examine the impact on consumers and firms with these legacy arrangements. Whilst we note the FCA’s concern in this area, it is already the case that these arrangements will be subject to regular review by firms to ensure they continue to deliver value for money and good outcomes to consumers. We look forward to working closely with the FCA on this matter over the coming months.”

Rob Hillock, head of personal financial planning at Broadstone, added: “The FCA’s plans are an important step towards closing the long-standing advice gap in the UK. Too many people are making complex decisions about pensions, investing and retirement without any support, so creating a clearer framework for targeted support and simplified advice could significantly improve access to help.

“It is interesting that the regulator is opening up the possibility of other institutions to offer simplified forms of advice, including banks, insurers and asset managers. This could move the framework away from holistic, long-term planning and more towards the selling of specific products which brings risks but could also encourage growth in the financial advice profession.

“The key will be ensuring consumers clearly understand the difference between guidance, targeted support and full financial advice, and that firms have the confidence to engage with customers without excessive regulatory risk. If implemented well, these reforms could make financial support more accessible and affordable, particularly for people approaching retirement who face some of the most complex financial decisions of their lives.

“This could fundamentally change how people access financial help in the UK, moving the system away from advice being only for the wealthy towards more scalable support for the mass market.”

Steve Gazard, chief distribution officer at Quilter, said: "The FCA’s latest consultation on simplifying advice rules is an important step toward fixing a long standing gap in the system. Holistic advice remains the gold standard for anyone with multiple objectives or more complex arrangements, but many people do not need a full review for every decision and currently have no workable alternative. Too often they face a binary choice between paying for a comprehensive service that is disproportionate to the task or receiving no regulated support at all.
 
"Rather than creating a new simplified advice regime, the FCA is consolidating and streamlining the existing rulebook so firms can make better use of the flexibility already available. Reframing suitability around sufficient information and proportionality, and bringing the rules together into a single area, should help firms deliver simplified forms of advice where a customer’s needs are clear without running a full holistic process each time. That preserves holistic advice value by ensuring the most in depth service is focused where it genuinely adds long term benefit, while simpler needs can be met more efficiently.
 
"It is also helpful that the FCA is clarifying that advisers do not always need to justify the client’s level of knowledge and experience for mainstream recommendations, such as straightforward ISA or pension journeys, and that suitability reports should be concise, client facing documents rather than defensive compliance exercises. Combined with the shift from annual to periodic suitability reviews, anchored in fair value under Consumer Duty, the FCA is giving firms more scope to design advice services that reflect real world customer needs rather than legacy rule structures.

"Targeted support, which is soon to be introduced will help people who are not yet ready for a personal recommendation build confidence and make basic decisions, while simplified advice offers the next step when a specific recommendation is appropriate. Together they create the continuum that has been missing: targeted support and simplified advice feeding naturally into holistic advice as customers’ financial lives become more complex, instead of today’s all or nothing set up.

"The success of this package ultimately depends on firms having confidence to operate within this more outcomes based framework. Clarifying “sufficient information” in the Handbook and providing new case studies is a good start, but alignment with the Ombudsman on how proportionate, simplified advice will be judged remains essential. Without that clarity, there remains a risk that firms continue to gold-plate processes to protect against hindsight risk and the benefits of simplification will be limited.

"Importantly, the FCA has chosen not to relax adviser charging rules or qualification requirements. That is the right approach. Consumers should expect that any personal recommendation, however focused, is delivered by a properly qualified adviser and paid for transparently. The opportunity here is not to cheapen advice but to use existing standards more intelligently so more people can access the right sort of help at the right time."