Only 7pc of advisers plan to offer a stripped-back ‘core advice’ service for Isa customers, according to AJ Bell.
The research, which was done as part of the company’s response to the FCA consultation that is concluding today, shows the inherent difficulties in developing a workable system for providing financial advice to retail investors with less money to invest.
A number of issues with the proposals are brought up by AJ Bell in its answer to the consultation. These include concerns that consumers may find it difficult to distinguish between “core” and “holistic” advice and subsequently fail to recognise when they need full holistic advice to meet their needs, as well as the threat that the restricted nature of core advice may encourage a sales-focused bancassurance model.
Instead, it is requesting that the FCA make known the details of its plans for the examination of the advice/guidance line. This study should concentrate on resolving issues that unduly increase the regulatory burden on advisers, drive up the cost of providing advice, limit access to it, and make it more difficult to provide counsel to non-advised customers.
AJ Bell head of retirement policy Tom Selby says: “The FCA’s overarching aim of encouraging over 4 million people who might have ‘excess cash’ to invest that money for the long-term, in line with their risk appetite and financial goals, is laudable. This is particularly important during a period where high inflation threatens to erode the value of people’s savings.
“However, the regulator’s ‘core advice’ reform proposals are extremely limited in nature and, at worst, could risk poor consumer outcomes if firms are effectively encouraged to flog products rather than focus on providing ongoing advice. It is also far from clear advisers have the appetite to develop propositions that could sit within this proposed regime.
“A survey of advisers by AJ Bell reveals just 7 per cent currently have plans to offer core advice to their customers, with capacity, fees and the risk associated with potential liabilities featuring prominently among firms’ concerns.
“Although limited reductions in qualification requirements, a reduced ‘fact find’ and narrower fund range may have a marginal impact on the cost of providing advice, we do not believe this will result in sufficiently lower advice costs to make serving those with Isa funds worth £20,000 or less attractive to the advice community.
“There is a real risk that encouraging core advice will lead to poor consumer outcomes. The FCA envisages charges for core advice sitting somewhere between £100 and £200 – the only way this could be made to work economically would likely be if huge volumes of sales were pushed through, most likely via major banks.
“This creates a fairly obvious danger that we could see a return to a product-sales focused environment, which in turn increases the risk of misselling. While we appreciate the Consumer Duty should help mitigate this risk, it is important to acknowledge the potentially negative behaviours core advice could encourage.
“The regulator also seems to envisage a world where adviser-client relationships in core advice are often transactional and potentially one-off in nature. While this may suit some advice firms, most will likely want an ongoing relationship with a client, in part to ensure their advice remains suitable and good outcomes are maintained. For many advisers, the fact this is limited to a single product will also be unappealing.
“We have two specific concerns relating to consumer outcomes if this model of advice is encouraged. First, there is a risk those people who might take and benefit from ongoing advice might shift to core advice, perhaps because they are attracted by the lower associated fees. While this might save them money in the short-term, they will lose the benefit of ongoing advice over the long-term.
“Second, by encouraging more people to take one-off, transactional advice, the FCA risks creating an army of ‘orphan’ clients who could be left in the advice wilderness. Given the regulator has been specifically trying to find better solutions for these clients as part of its work on implementation of the Consumer Duty, it would seem incongruous to then facilitate an advice model which is likely to make the problem worse.
“Given the size of the advice gap challenge, the FCA and the wider industry needs to focus efforts on the area likely to improve outcomes for the largest number of people – guidance. At the very least, potential improvements to guidance which facilitate simpler, more intuitive customer journeys should be looked at alongside core advice.
“Even if demand for core advice – both from the industry and customers – exceeds our expectations, there will still be millions of savers and investors who either can’t afford to pay for advice or choose not to take it, or both.
“It is therefore critical that policymakers are focused on ensuring both the advised and non-advised parts of the market are able to support people as much as possible. Lack of clarity over the advice/guidance boundary remains a significant challenge in providing useful information to those who choose not to take advice.
“It is critical the FCA now sets out clearly how it intends to proceed with its promised advice/guidance boundary review, which has the potential to improve outcomes for far more customers than the proposed core advice regime.”
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