Advice Boundary Review- The Final Frontier?

The reason for the Policy Paper “DP23/55”- Advice Guidance Boundary Review- proposals for closing the advice gap is, of course, the serious unintended consequence caused when the 2012 Retail Distribution Review resulted in the disapearance of finacial advice for a huge majority of ordinary folk who could not, or would not, pay an upfront fee to receive advice. The FCA acknowledges this problem, created by their predessor, and quite rightly the government would like something done about it. So what is being proposed? 

As  things currently stand, there are two ways customers can understand how to meet their financial product needs.

Firstly, to receive full personal financial advice from a qualified financial advisor and pay a fee for the privilege. There is a rule of thumb whereby financial advice firms seek customers with net wealth of £250,000+, and so most people have to go down a different route.

Secondly, to make their own product decisions when they have been supplied with relevant information. This second method has become known as an “Information Only Sale”, whereby the customer is given factual information , by a variety of means , about a product and must themselves decide if it is right for them. The only general obligation on the provider/distributor is to check that the product can meet their “demands and needs”.

Under this Policy Review it is proposed that there could be two additional levels of “advice” – “Targeted Support” and “Simplified Advice”. The concept of Targeted Support is likely to have the greatest effect in overcoming the unfortunate unintended consequence of the RDR. In a nutshell, it will encourage financial institutions to categorise their target consumer markets into groups of similar consumers and then be able to say to them that “this product is suitable for people like you”. By doing that, personal financial advice as to the suitability for the product at an individual level is avoided.

The “adviser” will of course still have to complete the demands and needs test (and an appropriateness test in some cases), explain the product in more detail, and then make the “people like you” confirmation of suitability.

The other major shift within this proposal is that the product manufacturing entity will be able to make a cross – subsidy payment to the advising entity. Many will regard this as a quasi-commission payment (a big change as  commission is not allowed under RDR in respect of a personal recommendation of suitability for investment type products).

The Policy Paper says it sees this approach as suitable in vertically integrated businesses rather than in intermediary firms. So in Insurance Companies, Banks, Building Societies, Fund Managers will we now see the re-emergence of  “direct salesforces”, albeit now online and call centre based,  advising the wider population on product suitability on a “people like you basis?”.

If you need help to maximise the potential emerging from these new concepts please contact us for a discussion.