Just 7% of advisers currently have plans to offer Core Advice, new research from AJ Bell shows.
Conducted as part of the firm’s response to the FCA consultation closing today (28 February 2023), the findings illustrate the inherent challenges involved in creating a viable system for the delivery of financial advice to retail investors with smaller amounts of money to invest.
In its consultation response, AJ Bell raises a number of concerns about the proposals. These include the likelihood that the transactional nature of core advice may lead to large numbers of orphan clients; fears that consumers may struggle to differentiate ‘core’ and ‘holistic’ advice, and therefore fail to recognise when they need full holistic advice to meet their needs; and the danger that the narrow scope of Core Advice lends itself to a sales-focussed bancassurance model.
It is instead calling on the FCA to set out clearly its plans for the review of the advice/guidance boundary. This review should focus on addressing factors which unnecessarily increase the regulatory burden on advisers, raising the cost of giving advice and preventing it being accessed by more people, as well as enabling the delivery of more help and support to non-advised customers through guidance.
Tom Selby, head of retirement policy at AJ Bell, comments:
“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% 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.”
Risks to consumers
“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.”