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What has happened?

In November 2022, the FCA, as part of its consumer investment strategy, set out in its Consultation Paper 22/4 Broadening access to financial advice for mainstream investments new proposals to improve access to financial advice. 

What are the key points?

The proposals would create a separate and simplified core financial advice regime, making it cheaper and easier for firms that hold the necessary permission, and their appointed representatives, to advise consumers about certain mainstream investments held within stocks and shares ISAs.  

The FCA’s proposed changes aim to prevent in-person financial advice from being too costly for many potential investors, as this can stop them from investing instead of holding excess cash when it may be in their interest to invest. It wants the regime to be straightforward and affordable for mass market consumers with at least £10,000 in cash savings.

The FCA is consulting on: 

•    Proportionately reducing the existing qualification requirements to reflect the lower risk of this narrow scope core advice, focused on only the necessary technical and regulatory understanding to advise on mainstream investments,
•    Streamlining the existing COBS 9A suitability requirements to reflect the narrower scope and complexity of this advice relevant to the decision that consumers will be making (although suitability reports will still be required),
•    Limiting the possible investments advisers can recommend under the new regime to a set of mainstream investments, by excluding any recommendations to invest in high-risk investments, and
•    Applying the adviser charging regime while allowing greater flexibility in charging structures to allow consumers to pay for transactional advice in instalments without bringing firms into the scope of consumer credit legislation.

The FCA expects these changes, along with the Product Governance requirements and the Consumer Duty, should mean that core investment advice can be offered to consumers at a lower price point than holistic (i.e. mainstream) financial advice.

The FCA will seek to publish a final policy statement and to finalise rules and guidance governing this kind of advice in spring 2023, targeting implementation of the regime before the end of the 2023/24 financial year (end March 2024) so firms would be able to start offering core investment advice from the beginning of April 2024.

In January 2023, the FCA said that it will “take timely action” if firms provide simplified advice inappropriately ahead of the regime’s implementation.

In a response to the Treasury Committee for financial services regulation, published on January 30, the regulator stated that the core investment advice regime would retain most of the current rules. Advisers providing simplified advice will still need to gather sufficient information to make a personal recommendation, ensure any recommendation is suitable, adhere to product governance rules, disclose initial and ongoing charges, and provide a suitability report. 

“Should such a regime come into force, we will monitor and supervise its implementation and operation, including using data where appropriate, and take timely action where we identify issues,” the regulator’s executive director for markets, Sarah Pritchard, was quoted as saying. “We would expect firms to have appropriate processes in place to triage potential clients effectively. As part of the suitability assessment process, firms must ensure that those with more complex financial needs are identified as requiring services beyond core investment advice. We recognise that a stocks and shares ISA product will not be suitable in all circumstances, which is why firms will still need to assess suitability for each client they advise.”

In her response, which was submitted to the Treasury sub-committee for financial services regulations, Pritchard also said the revised qualifications for the core investment advice regime “are commensurate with the narrower scope of the advice to be given”. 

Core investment advisers will be required to pass only two modules of the existing RQF Level 4 qualification for financial advice; financial services, regulation and ethics, and investment principles and risk. 

How can we help you?

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as and when, our team of specialists can serve as your right hand in a meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Has anything discussed in the article raised questions you want answered? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 0207 436 0630 or sending an email to info@thistleinitiatives.co.uk.