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Topics: RDR| FSA| Aim Two Three| Ernst & Young| Chapters Financial | Ombudsman for Estate Agents (OEA)
The FSA touted it as the solution to the mass market problem, but will simplified advice be declared dead before it even gets off the ground?
The Financial Services Authority (FSA) is struggling to get providers on board with simplified advice, an industry expert has warned, leaving the mass market advice problem potentially unresolved.
The regulator published a guidance consultation last year outlining its definition of simplified advice and the various versions which providers and distributors could opt for (see box below).
However, Malcolm Kerr, executive director at Ernst & Young, said the FSA was finding it difficult to get providers and distributors interested.
He said: “It hoped that the industry would come up with some models which would create the right customer outcomes but not much progress has been made and no one’s come up with anything that would work.
“The RDR fee model strikes particularly hard at people with modest sums to invest, and that’s the target market for simplified advice.”
David Ingram, founder of provider consultancy Aim Two Three, agreed there had been little interest in simplified advice among providers and he identified their key concerns.
“While the FSA and Ombudsman sit back and say simplified carries the same regulatory requirements as full advice, why would anyone want to provide it?” he asked. “They’re asking people to take too much risk.”
Although he has put his own attempts on hold, Keith Churchouse, director of Chapters Financial, still feels there is a future for simplified advice and believes the industry will see a similar evolution to the general insurance market, where online aggregators now make up a large part of the market.
“It will fill the middle, post-RDR, ground and my belief of that has not changed in any way, shape or form,” he said.
“I think it does work but it needs a volume marketing approach, possibly from a bank, supermarket or large-scale distribution model.”
Kerr also believes simplified advice could thrive, although he remains unsure about whether financial advisers would want to get involved.
“What the profession should be doing is trying to work out how they can combine technology with advice at a much lower cost than the current models.
“However, it’s not really where intermediaries want to play as they would much rather focus on people with more wealth. With their qualifications and experience, it would be like a brain surgeon being asked to cure a nose bleed.”
What is simplified advice?The FSA has outlined three different types of simplified advice, each based on an automated system using decision trees, but with different levels of human advice. It can be where:
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Disconnect
There are two disconnects evident here. The first, as I and many others have been saying, is that the RDR experiment has totally failed the consumer by pricing the lower paid out of the advice process. Let's not forget, these are the very consumers whose failiure to engage with the industry is used as a plank of the 'reforms'. The second disconnect is the FSA. It is totally disconnected from the reality of the advice process. It doesn't understand consumers, it doesn't know what they want, it doesn't appreciate the psychology of buying and it absolutely fails to understand that products are solutions and that these products have to be sold.
Posted by: Alan Lakey
Good opportunity for advisers?
Hard to disagree with Alan that RDR has not found a solution for the mass market that needs products to be sold. There must be an opportunity for platforms to offer a simplified advice solution (via online tools) for small value investment (ISA and pension)adviser clients. The client would be owned by the adviser but the platform would run the products / assets. Once the client value rises the adviser may take over the relationship on a fee basis. A bit like lawyers taking on simple will business to get the trust work later. If Hobans project team could come up with a range of simple "FCA certified" products surely these should allow a standard commission to allow them to be sold. I know that sounds horribly like stakeholder! However - suspect more likley is a complete ban of commission on all legacy isn't far away - two tier market isn't sustainable.
Posted by: David Norman
Simplified Advice
The FSA invented the idea of 'simplified advice' and now expects financial services companies and advisers to implement their ill-thought-out ideas. The FSA, and many other quangos linked to government, are pretty good at re-inventing wheels - even if most of them have corners.
Posted by: Bill Wells
FSA FAILURE
Alan certainly speaks for me. I echo every word. The quest for the Holy Grail of crass incompetence has succeeded with the FSA and will be perpetuated by the FSA's successor bodies. The whole financial services industry has been put back 100 years. Simplified advice products simply do not exist and cannot exist in a world of information overload and feigned protective governance. When 9% of my turnover is used to provide regulatory mayhem born of experimentation leading to market detriment where is the opening for simplicity and modest operational expenditure to provide a service to the public?
Posted by: Terence P O'Halloran
Failed FSA - Again or Still?
Look, the Failed FSA is a central planning bureaucracy. All such bunches of functionaries are by definition ignorant. The Failed FSA manages to compound that ignorance by arrogance. Arrogance and ignorance are a toxic combination. Essentially 'the market' had already solved the mass advice/distribution issue. What the Failed FSA has done is mess it up. Quelle Surprise.
Posted by: Steven Farrall
Which is it?
Simplified Advice = Complex advice that has been simplified so that the man in the street can understand it. (Much like what all IFAs do for their clients anyway). OR Simplified Products = Complex products that have most of their features stripped out so as not to confuse the DIY investor with choice. Documentation to be written in short words.
Posted by: Green Eyed Monster
Industrys 2 Finger Salute
I dont think its the industrys inability to come up with something to meet the simplified advice proposals, could it at last be the industry saying to the regulator enough is enough we are not playing your game anymore. If so its taken them long enough to figure out there inept!!
Posted by: David Hatton
Simplified Advice
Please do not be fooled into thinking that "Simplified Advice" will be still born. It will not. The banks and insurance companies will find a way of acheiving it for their direct sales or so called adviser people. Liability for it will be reduced and or limited and they will not have to complete fact finds, health questionnairs or provide 13 or more pages of suitability reports to do it. We know that L & G,Standard Life and many others are able to sell pension annuities to pension plan policyholders who contact them direct without doing fact finds, health questionnaires or suitability reports as IFAs have to. It gets them lots of business they should not get at the expense of the general public.
Posted by: John Smyth
Home service
I've always been an iFA since leaving my broker consultant job in 1991. BUT the lower end of society in income terms - and I mean that to be in no way demeaning - used to be looked after by the home service companies. That used to be the SIMPLIFIED ADVICE SERVICE. Since their demise there has been a huge gap in the market. IFA's generally don;t want to deal with small case sizes - economies of scale apply - in order to make some kind of economic sense we need to make around £750 per client to make it even worthwhile speaking to them. This is partly the FSA's own fault as we need to pay their fees, compliance costs etc etc. The home service companies whilst often derided on this site used to perform a valuable and necessary service -now the vast majority that used to deal with the Pearl, Pru etc either deal with no-one or are driven towards the banks...and we all know how that'll end.
Posted by: Paul Burnside
Logic & Grammar
This really is a bit of nonsense. Simplified advice is an oxymoron. Advice is rarely if ever simple. If it is advice for the simple then that too is a disjoint because the simple generally don’t listen (or even ask for) advice. So what we have is what has already been identified – Simplified Advice = Sub Standard product to sold by the bucket load by the banks who never seem to learn and will invariably have to pay eye watering amounts in compensation. Unless….. Hitherto what was sold probably had input of some sort from the investment banking part of the bank helping the bottom line. If these are now to be split off, banks may well think twice before flogging products. The older ones amongst us can recall that before ‘Big Bang’ banks often referred clients to ‘brokers’ for ‘policies’.
Posted by: Harry Katz
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No surprises here then...
There was never going to be a headlong rush into the Simplified Advice arena by either established financial services companies or potential entrants to the market. If you're wondering why, follow the money....the market would be driven by cost led, probably unsophisticated customers shopping round with marginal budgets. OK, that sounds like general insurance and the consumer facing sites make money out of that - but take away commission and ask these budget led consumers to actually pay directly for the service and the situation is completely different. Of all of the market sectors where direct payment for advice, or even product information and support, is most heavily resisted it's this one. One of the FSA models for SA includes having access to a properly regulated individual - who is going to pay for them? When I challenged him directly at the 2011 Public Meeting Lord Turner said that the FSA fully accepted that some sectors would not have access to financial advice after RDR, but that this would be catered for by SA. Where does he suggest that these people go now - given we have 10 months until RDR?
Posted by: David Brunning