Simplified Advice

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.

Simple Products Consultation

The Goverment is running a consultation on how encourage financial services firms to offer simple products and how to make sure that consumers are aware of them. Full details can be found here, including a report that I was commissioned to write by the Treasury.

FSA Abolished

It was announced earlier this week that the Financial Services Authority is to be abolished and that it will disappear by 2012. I would suggest that this came as somewhat of a surprise, as George Osbourne had pledged to spend time listening before deciding and it was clear that the Lib-Dems were less keen on closing down the FSA. From a consumer protection perspective, in its place will be a Consumer Protection and Markets Authority, which will be responsible for policing the actions of financial services companies. The precise remit and objectives of the new authority will no doubt become clearer over time.

Bundled Current Accounts Don't Offer Value For Money

This report suggests that most packaged or bundled current accounts do not offer customers value for money and that their main purpose is to provide banks with a mechanism for ensuring that as many customers as possible pay a fee for their banking. Obviously such accounts for provide other benefits and will be suitable for some, but most will not get value for money. There may well be a framing issue at play here too. The fees for such accounts are almost always quoted in monthly terms and it may well be that £15 per month is inherently more palatable that £180 per year. Perhaps an AEC (Annual Equivalent Charge) should be provided, similar to an AER for interest rates. 

Is there a future for the FSA?

The Conservatives pledged to abolish the FSA if elected, however, the coalition has been very quiet on this matter since it came to power. This article provides the latest thinking and implies that there are tensions between the Conservatives and Lib-Dems over what to do with the FSA