The Financial Conduct Authority (FCA) is reviewing the boundary between regulated financial advice and guidance across the sector.
FCA executive director for markets Sarah Pritchard announced the move which could have a significant impact on the protection and health insurance markets.
According to data from Swiss Re, around 50% of protection sales completed in 2021 were non-advised.
The divide has proved a controversial one over the last 12 months with advice firm LifeSearch publishing a report and independent market research which it believes shows evidence of poor disclosures and outcomes from non-advised sales.
This was echoed by St James’s Place divisional director Tony Müdd who accused some non-advised protection broker firms of playing on customer confusion around the difference between advised and non-advised sales.
However Phil Jeynes, director of corporate strategy at non-advised broker firm Reassured, argued the non-advised process was part of the modernisation process of the market.
‘Heavy regulatory burden’
Announcing the review at the Future of UK Financial Services Regulation Summit, Pritchard said changes were possible as the UK was leaving the European Union-based MiFid II regulatory regime.
Much of Pritchard’s speech focused on the impact for investments, but any overhaul of the rules would also likely affect the protection and health insurance markets and sales processes.
“One area we are looking at transforming is the advice and guidance rules,” Pritchard (pictured) said.
“MiFID was introduced 15 years ago and had a clear distinction between advice and guidance. Offering advice on what to invest in carries with it a heavy regulatory burden.
“A full suitability assessment – in effect an in-depth MoT of a customer’s personal financial situation – is needed from a qualified financial adviser.
“Because of the costs involved, only the relatively well-off can access advice on what to invest in. Mass market consumers are often left to navigate a bewilderingly large choice with little support.”
‘Holistic review of the boundary’
The regulator wants to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low.
Pritchard noted this will remove some of the burden of regulation which currently applies across the board to all advisers and will enable firms to reduce charges and make advice on mainstream investment more accessible to mass-market consumers.
“Once the FCA has greater rule making powers under the future regulatory framework legislation next year, we will be able to do more,” she continued.
“To get ready for that, we want to carry out a holistic review of the boundary between advice and guidance so we can understand how to reduce the regulatory burden while continuing to provide the right level of consumer protection.
“The weight of regulation should be commensurate with the level of risk but moving away from the one-size-fits-all approach mandated by MiFID will be complex and it will need assistance and input from industry.
“We are getting ready now for the greater opportunities that will exist in future to set rules that are appropriate for the UK,” she added.