November 29, 2011, by Andrew Burden
I have been reflecting on the FSA’s Simplified Advice Guidance issued earlier in the Autumn. Remember that Simplified Advice has at various stages also been referred to as Primary Advice and Guided Sales. However, as the document makes clear on pg 4, Simplified Advice is not the same thing as Basic Advice, the latter being outside the Professionalism and Advisor Charging requirements of the RDR. Basic Advice is advice given on a Stakeholder Product. Confused? Well, I suspect most people are likely to be as to most the terms Simplified Advice and Basic advice sound very similar.
The Guidance explains that Simplified Advice is “restricted advice” in that it does not consider all potentially suitable products. However, it will result in a specific personal product recommendation and needs to comply with the same regulatory requirements as full advice. There must be a question, therefore, as to whether the provision of Simplified Advice will prove economical for firms, given that regulatory and other costs may not be significantly different than for other advice, whereas the amount that potential investors are willing to pay is likely to be significantly lower than for full advice.The FSA appear to be pinning their hopes on the fact that a large degree of automation can reduce costs to an economical level, but this remains to be seen.
Later in the guidance document (pgs 16-18), discussion of the types of products that may be suitable for provision under Simplified Advice is presented. A link to the FSA’s current work on product intervention is made and firms are cautioned to ensure that they accurately define their target market for Simplified Advice and develop a product suite that will meet that market’s needs. On pg 21, the FSA states that it would expect products available through Simplified Advice to be easy-to-understand, low-cost (with simple charging structures), flexible and not high risk. Given that many of these characteristics are already provided by Stakeholder Products and are likely to be the basis upon which any new Government championed suite of simplified products are specified, then I am at a loss to understand why products provided through any Simplified Advice regime should not be restricted to Stakeholder/Simplified Products. Such an approach should have the added advantage that Simplified and Basic Advice would effectively then be the same thing and for consistency and simplicity, the moniker of Simplified Advice could be used in all cases.
Then, the Government could introduce a recognisable and authoritative kite mark for “Simple Products”, along with appropriate warnings for other products. Couple this with a regulatory requirement that advisors must justify the recommendation of anything other than a simple product (similar to the RU64 regime for personal pensions), and we would be well on the may to most people being directed towards the Simple Products that are appropriate to their needs.
James Devlin (Professor of Financial Decision Making, Nottingham University Business School)
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