Two years ago Pimfa set out a vision for the future of advice. The value of financial advice in our view is indisputable, but it is also the case that the gap between holistic financial advice and the services available to consumers who do not, and cannot, access advice is vast.
We have always been of the view that the widening advice gap needs to be addressed, and preferably bridged, in two ways.
Firstly, we need to look again at the boundary between advice and guidance and re-evaluate what is currently permissible under the definition of guidance.
There are clear arguments for the introduction of certain aspects of personalisation, which are currently not permissible, but which would enable better outcomes for non-advised, largely disengaged consumers.
But any liberalisation of guidance should always stop short of even the illusion of a recommendation; guidance tells you what something is, advice tells you what you should do.
This is why we were happy to see the Financial Conduct Authority bring forward its proposals on core investment advice.
But let’s be clear, these proposals are imperfect. We have sympathy with the core argument put forward against the FCA proposals, namely that rather than being a simplified form of advice the proposals are really just a way to encourage greater use of stocks and shares Isas.
However, the narrow scope of the FCA’s proposals may also prove to be – and perhaps this was the FCA’s intention all along – a potential proving ground before they are expanded into other product areas.
If this is the case, the proposals need to work, and to work they must be commercially viable. But that leads to our main criticism of the FCA proposals.
As currently set out, the FCA risks suffocating these reforms without giving them the chance to represent a real business opportunity for firms. The proposals apply a £20,000 lifetime limit, which makes some sense given that the annual contribution limit for Isas is set at £20,000. But to impose this limit over the lifetime of a saver makes no sense whatsoever.
On the face of it, it appears the FCA is targeting an established demographic that has around or a little more than £10,000 in investable wealth but do very little with it.
But this brings us back to the core argument against these proposals, which is that they act as a one off to provide those assets with a home – a stocks and shares Isa – rather than as a vehicle to encourage people to save and invest beyond that single transaction.
Our support for a simplified, or core, advice regime has always been based on two arguments. Firstly, we recognise there are significant behavioural barriers that prevent people from investing their savings. Put simply, some people fear investing in the first place.
