The Financial Conduct Authority (FCA) plans to carry out a holistic review of the boundary between advice and guidance in a bid to better understand how to remove some of the burden of regulation, as stated in a speech today (27 September).
FCA executive director of markets Sarah Pritchard pointed to the many ways the FCA is adapting to prepare for economic growth, including the ability to do more once the Future Regulatory Framework (FRF) becomes law.
"One area we are looking at transforming is the advice and guidance rules," said Pritchard, pointing to the "bewilderingly large choice" of investments mass market consumers are left to choose from without access to advice.
Advice comes with a "heavy regulatory burden" said Pritchard, who added, that "because of the costs involved, only the relatively well-off can access advice on what to invest in".
Pritchard highlighted the FCA's previous commitment to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low, as set out in its 2021/22 consumer investments strategy.
This simplified regime aims to "remove some of the burden of regulation which currently applies across the board to all advisers," while also enabling firms to reduce their charges and make advice on mainstream investments more accessible to mass-market consumers, said Pritchard.
Before the FRF legislation is instituted, Pritchard said the FCA wants to carry out a holistic review of the boundary between advice and guidance "to 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 the Markets in Financial Instruments Directive 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."
AJ Bell head of retirement policy Tom Selby said: "The cost-of-living crisis and ructions in currency markets are dominating the headlines right now, with millions of savers and investors bombarded with information from all angles and facing often complex choices about what to do with their money.
"Those who are willing and able to pay for regulated advice are well served by the market and should be able to navigate through the current storm with a clear-minded focus on the long-term.
"However, those who do not take advice need better, more personal guidance so they can make financial decisions which are more likely to lead to ‘good outcomes', in line with the FCA's Consumer Duty."
"We welcome the FCA's acknowledgment of this issue and urge the regulator to push forward its review at pace. A culture of fear has built around providing guidance that risks going anywhere near the blurred advice/guidance boundary, with firms and employers keeping a safe distance from the boundary and ordinary people receiving less help making decisions as a result.
"Although there will always need to be a boundary between advice and guidance, firms need a clearer understanding of where that boundary sits and what they can and can't do.
"The Financial Ombudsman Service needs to be included within this review process, as its interpretation of FCA rules will go a long way to determining how far firms are willing to go when providing guidance to customers.
"Ultimately it may require legislation from government to address the current advice/guidance impasse, but the announcement of this review is at least a step in a positive direction."
