The Financial Conduct Authority will review the boundary between guidance and advice, which is often seen as too restrictive by the pensions industry, promising more action once it has greater powers under the future regulatory framework next year. 

 

The FCA is “looking at transforming” the advice and guidance rules, Sarah Pritchard, executive director markets said at the virtual ‘Future of UK Financial Services Regulation Summit’ on Tuesday. 

 

 

The FCA said a year ago in its Consumer Investments Strategy that it wants to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low, to lighten the regulatory burden on advisers. 

 

Pritchard now said: “Once the FCA has greater rule making powers under the future regulatory framework legislation next year, we will be able to do more.” 

 

In preparation for this, the FCA plans to conduct “a holistic review of the boundary between advice and guidance so we can understand how to reduce the regulatory burden while continuing to provide the right level of consumer protection”, she added. 

 

The weight of regulation should be commensurate with the level of risk, she said, but warned that “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”. 

 

 

News of the FCA’s review has been positively received by the pensions industry, where the lack of advice taken by retirees has long been a cause for concern. 

 

Rob Yuille, who heads up long-term savings policy at the Association of British Insurers, welcomed the review and the fact the FCA wants to take a holistic approach to it. However, he cautioned against taking too long for this: “After a number of false dawns, the FCA needs to make sure that a review is done quickly and that the changes made are effective and shared across government and regulators.” 

 

Investment platform AJ Bell is also in favour of a review. Like Yuille, Tom Selby, head of retirement policy at AJ Bell, urged 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,” he said, meaning people receive less help in making decisions because companies stay so far away from the boundary. 

  

“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,” he argued. 

  

Selby wants the Financial Ombudsman Service to be included in the review process, as its interpretation of FCA rules will be important for firms deciding how far they 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,” he added. 

The distinction between advice and guidance comes from MiFID, introduced in November 2007. Consumers receive a personalised review and recommendation through advice, while guidance can only give general pointers without recommending a particular action.  

 

Despite complex decisions being required at retirement, financial advice is obtained only by a minority of those reaching it. Just a third of plans accessed for the first time in 2020-21 were accessed by plan holders who took regulated advice, 3% lower than in 2019-20. 

 

This ‘advice gap’ is attributed to the high cost it comes at, the availability of advice, particularly to those with smaller pots, and also recent scandals involving poor advice such as that around the British Steel Pensions Scheme. Guidance is available for free from the government in the form of a one-off 45 to 60-minute session by Pension Wise for the over-50s. 

 

What do you want to see out of this review?

Rob Yuille

Nigel Peaple

Charles Goodman

Billy Burrows

Laurence Edmans