The Financial Conduct Authority (FCA) has urged firms to provide “flexible forms of support” for customers and to “manage risk rather than eliminate it” as it reviews the advice-guidance boundary.
However, the regulator added that consumer protection should remain at the core of any future regime and it would work closely with the Financial Ombudsman Service (FOS) to do so.
The call is part of the latest step in the regulator’s review announced a year ago that could significantly shake-up the financial advice process, particularly in the protection and health insurance markets.
The FCA has generally focused on the impact for investments as part of the boundary review, but any overhaul of the rules would also likely affect the protection and health insurance markets and sales processes, where there has been significant debate about how the advice and guidance processes operate.
The FCA said the review aimed to “ensure that consumers get the help they want, at the time they need it, and at a cost that is affordable, to help them make informed financial decisions”.
Following early work including focus groups within the industry and consumers the regulator published four key themes which will guide the next phase of the review.
They are:
- The solution to this challenge will not be met by changes to regulated advice alone. People’s needs are diverse and vary over their lifetime. The FCA says it needs firms to actively engage and provide flexible forms of support that can adapt to different types of financial decisions.
- To provide more support to more people it will be necessary for firms and consumers to manage risk, rather than eliminate it. This is because risk is a key driver of cost to firms and ultimately to consumers which directly impacts on the availability of support.
- Any solution will rely on support being provided on a commercial basis. The review will need to focus on outcomes and design a regulatory system where commercially viable models of support can emerge.
- This review should leverage the Consumer Duty, to set clear expectations for the support that firms provide their customers and ensure that consumer protection remains at the core of any future regime, and the FCA will work closely with FOS to do so.
Getting closer to the boundary
It has also published clarifications for firms who want to support consumers more, particularly during the increased cost of living, without providing a personal recommendation.
While this included examples on getting closer to the advice-guidance boundary for customers making investment decisions, it could serve as examples for the protection and health insurance sales process where relevant too.
The FCA highlighted a communication will not be advice if it is purely factual or does not relate to a particular investment product.
“On its own, generic or general advice, for example on the merits of investing in investment trusts as opposed to unit trusts or unit-linked insurance, or in Japanese rather than European equities, does not amount to the regulated activity of advising on investments,” the FCA said.
As an example, it added that where a customer asks a firm about the difference between an ISA and a pension, a firm can explain their different features such as, access restrictions and tax treatments.
The regulator is also wrapping its simplified advice regime proposal for the investment industry into the further work of the advice-guidance boundary.
A further update in a policy paper is set to be published in the autumn.
FCA executive director for markets Sarah Pritchard (pictured) said: “It is vital that people get the help they need to make effective decisions – whether that be guidance or full financial advice from a qualified financial adviser.
“This is particularly so now, with the cost-of-living pressures.
“We want consumers to have greater confidence to invest, but to achieve that people need access to the right information to help them make decisions, understanding levels of risk. Our joint work with the Treasury in the months ahead will help to achieve that.
“In the meantime, and to see quicker improvements, we are taking steps now to give firms greater confidence to support consumers, pending broader reform, by clarifying the boundary of the current regime.”