The Financial Conduct Authority will carry out a “holistic review” of financial advice, said Sarah Pritchard, executive director of markets, at the City and Financial Global’s ‘The Future of UK Financial Services Regulation Summit’.
She explained that when Mifid was introduced 15 years ago, it had a clear distinction between advice and guidance. It defined financial advice as “a full suitability assessment of a customer’s personal financial situation”.
But because of the high costs involved with getting qualified financial advice, the mass consumer market is often left to navigate their finances with little support.
As a result, the regulator intends to set up a “simplified advice regime” where risks to consumers are relatively low, allowing advice firms to reduce their charges and make their proposition more accessible.
This would be paired with a removal of some regulatory burdens, Pritchard added.
The FCA is waiting until 2023 when it is set to receive greater rule-making powers and will be able to do more on the matter.
But while it waits for the changes to take place, Pritchard revealed the watchdog will undergo a holistic review of the advice/guidance boundary “so we can understand how to reduce the regulatory burden while continuing to provide the right level of consumer protection”.
“The weight of regulation should be commensurate with the level of risk but moving away from the one-size-fits-all approach mandated by Mifid will be complex and it will need assistance and input from industry.
“We are getting ready now for the greater opportunities that will exist in future to set rules that are appropriate for the UK.”
A review of the ‘blurred’ advice-guidance system will undoubtedly be good news for financial advisers who have been calling for more clarity of the grey area created by this dichotomy.
Anne Fairweather, head of government affairs and public policy at Hargreaves Lansdown, said: “For a long time, Hargreaves Lansdown has recognised that the advice boundary is a barrier to our ability to guide clients towards better outcomes.
“Whether it is pointing clients to a lower cost index tracking option or reducing the risk that clients run out of pensions savings too soon, there’s a bigger role firms can play supporting their customers.
“This review is a big opportunity to demonstrate how innovation and data analytics can guide people with their financial choices. We see this as a crucial step to help savers and investors in the cost-of-living crisis and support the nation as we rebuild our financial resilience in the longer term.”