While realising I am probably in the minority in this industry, I fear the Financial Conduct Authority is about to score a major own goal that will have dire consequences.
Changing the advice guidance boundary will cause a huge dilution of consumer protection.
It will make it easier for manufacturers and others to sell products without advice, avoiding the inconvenience of being responsible for the consequences of their actions.
This risks setting consumer protection back decades.
I passionately believe the advice guidance boundary is in the right place. Now is exactly the wrong time to change it.
We will see widespread misselling, covered up as guidance, with thousands of consumers facing significant losses at a time in their lives when they have no opportunity to earn back the money they have lost.
This risks setting consumer protection back decades
This – entirely avoidable – misselling scandal could lead to compensation payouts of a similar scale to PPI, probably, again, on a non-contestable basis.
The FCA should think long and hard before it makes a serious error that could damage the wealth of millions of people.
Guidance should carry a health/wealth warning. I would suggest a statement along the following lines: “This service is only provided as financial guidance. You do not benefit from the same protection as you would if you take financial advice”.
I anticipate the comments section below will be full of objections to this but, if the consumer is going to receive less protection, this should be made very clear to them.
As we have seen time after time, when the regulator gets it wrong, the industry pays the price
Without such a warning, consumers won’t be able to recognise the difference between advice and guidance.
We are already seeing a growing number of guidance propositions dressing themselves up to look like advice but with none of the consumer protection.
As we have seen time after time, when the regulator gets it wrong, the industry pays the price.
Ironically, the boundary changes are being proposed at a time when technology is making it possible for firms to take a fresh approach to delivering regulated advice at far lower cost and in greater scale.
Hub Financial Solutions, for example, is now able to support as many as 1,000 clients per single highly qualified adviser by combining its bespoke automated advice technology and, in some cases, non-level 4 qualified staff.
The UK can (jointly with Australia) claim a world-leading standard of consumer protection for long-term savers
This enables it to market a service to consumers who would usually be uneconomic to support through traditional advice. The firm is even going as far as collaborating with other established advice firms to buy non-economic clients from them and even agreeing to return these clients should their needs require more sophisticated advice.
This is by no means an isolated example. I am seeing more and more innovative advice firms building high-tech services to make fully regulated advice accessible, with all the consumer protection that provides, for a fraction of traditional costs.
In my work internationally, I see how consumers in other countries suffer from a lack of adequate protection due to limited regulation.
The UK can (jointly with Australia) claim a world-leading standard of consumer protection for long-term savers.
This has been achieved through hard work by advisers, regulators and broader industry players over several decades. Now is not the time to throw this away – especially when technology is beginning to deliver better solutions with the same high standard of consumer protection.
Ian McKenna is founder of FTRC
Nail on the head! Another mis-selling scandal waiting to happen with the industry picking up the bill.
The FCA, as usual, approach from a theoretical basis – everyone is entitled to comprehensive and competent advice – but most cannot (or will not) pay for it.
Thus, let’s water down the requirement but leave all the penalties in place: manna from heaven for the ambulance chasers!
Perhaps the FCA should stop tinkering and let things work their way through, but they suffer from the problem of all Regulators: they have the view that they have to be seen to be doing something, even though the law of unintended consequences will apply!
Absolutely Eric. The FCA is a quango, with a civil service mentality on may occasions to solving issues. Take the RIAAT tool for example when re-checking file 80 pages of which the majority aren’t relevant.
As a firm we have 35 reports to do each year for Compliance and the FCA-it doesn’t stop the wide boys from operating
The FCA are listening to the providers of their post leaving sinecures. The banks and insurance companies will make billions again. And they will mis-sell on an industrial scale. Again. And the FCA will “realise” 10 years later that it was a mistake. Again.
But, by this time, lots of unaccountable people will have made lots of unaccountable money so they will be happy. Perhaps the management at the FCA will then get top jobs at the places they failed to regulate. Again.
Cant be surprised by anything these muppets do. Unfit for purpose.
An excellent article!
The Dark Lords don’t care about miselling… as long as, in the end, there are deep pockets to pay out if policy fails – I suspect the vast majority of ‘thin’ guidance will be supported by product providers, with distribution through ‘pop ups’ or banks…
A way to front end weed out some, say, former travel agents or nail clinic opportunists, would be to demand a performance bond to cover an amount of sales – perhaps a bit like insurance being premium limited to capital/reinasurance etc.
What is FCA view upon remuneration for these guidance bods?
Personally, I note the word ‘support’ is used – after HUB – not ‘service’ or ‘look after’… if a thousand clients want advice, AI will not be THEIR first choice!
I am, I admit, a sceptic of tech. over contact, (happy to be educated FTRC), but, if it is to be implemented, then it will better serve the thin end of the market which will tend, I suspect, toward more standardized product – to meet the limited training and advice.
Is the whole population ready for a full frontal of guidance anyway? Most avoid lawyers in lieu of a life – and, in the lower wealth end of life, price is key and something is better than nothing.
FCA already hide behind their ill earned barriers… the best advice they could give anyone is avoid the CII… the Double Dipping inquiry seems to have been forgotten – not here mind – this is a home made scandal of hundreds of millions just waiting to be revealed…
Lol… There is only one thing worse than buying time share… that is doing so,then being forever hounded by the ambulance chasing compensation industry!! I see to recall PPI being a good example…
As for being in a questioning minority re FCA Ian… errm… welcome back from the coma!!!
I agree with Ian. I suspect he’s in a massive majority on here, not in a minority as he fears.
I do agree with you Ian, but this topic has been made unnecessarily complicated and confusing. Advice is where a specific product is recommended and a charge levied for the recommendation and the execution. Guidance should never recommend a specific product – just a generic. EG – “You should invest in an ISA, you need to put more into your pension, why don’t you have any life assurance?” etc. Then the guidance can also explain how to assess whether your adviser is any good, how to benchmark results, how to assess valuations. All the things that unfortunately are lacking from many advisers. This guidance is charged for. What should not be permitted is that the ‘guider’ is recompensed by the adviser, if they recommend a specific adviser or firm. The guider should not be linked to an adviser or adviser firm. This really isn’t rocket science.
I take the point Ian but as things stand only 8% of UK adults are paying for financial advice and, it seems even that number is falling. What the FCA are proposing might not be perfect but surely a different approach is required to help at least some of the 92%? And, I don’t see technology alone is the answer. The industry has thrown £millions at technology over the last couple of decades and, if anything, the fees paid by most clients has gone up rather than down. Financial Advisers will carry on looking after the 8%, and that’s fine, but let’s not try to kill the FCA’s initiative aimed at the 92% before its even got started.
I completely agree with Ian—clarity is key when discussing these terms. Instead of “advice,” we often see product sales with accountability. And what’s labelled as “guidance” can sometimes just mean product sales without that accountability. It’s encouraging to hear that technology is bridging the gap by providing accountable product sales to those with limited assets. However, what people truly need is genuine advice without the pressure to buy, rather than sales without advice.
Accessible and transparent advice, free from sales influence, can genuinely empower underserved individuals, helping them make informed decisions based on their unique needs. By focusing on unbiased support, we can build trust and make a lasting impact in communities that need it most.
The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
Article 53 Advising on investments
(1C) Subject to paragraph (1D), a personal recommendation is a recommendation:
a) made to a person in their capacity as an investor or potential investor, or in their capacity as agent for an investor or a potential investor;
b) which constitutes a recommendation to them to do any of the following (whether as principal or agent);
i) buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular investment which is a security, structured deposit or a relevant investment, or
ii) exercise or not exercise any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment; and
c) that is;
i) presented as suitable for the person to whom it is made, or
ii) based on a consideration [my needed insertion: by the authorised firm or the exempt firm] of the circumstances of that person.
(1D) A recommendation is not a personal recommendation if it is issued exclusively to the public.
Given the above, the question is, can a firm making a non-advised sale take the circumstances (i.e. the needs and characteristics) of the client into account and, if so, how?
Ian McKenna,
You got it right.