The Financial Conduct Authority (FCA) has proposed encouraging more people to invest by creating a simplified financial advice structure that will make it cheaper and easier for firms to advise people about mainstream investments within stocks and shares ISAs.
The aim is to allow firms to provide consumers with straightforward financial needs greater access to simplified advice on investing into mainstream products, specifically within stocks and shares ISAs, the consultation paper said.
Inflation has been a problem for savers in 2022 as prices have risen by 10% or more in recent months compared with a year ago.
But the FCA revealed that, in 2020, around 8.4 million Britons of the 15.6 million with more than £10,000 in investible assets kept the majority of their pot in cash. The regulator suggested that figure could have climbed as# high as 9.7 million people today.
In a separate report, intelliflo's 2022 Advisory Business Impact Poll found that some 73% of the roughly 150 advice firms that took part said the gap between those who get financial advice and who want it has expanded over the past five years.
More than half (58%) of the advisers had experienced an increase in people seeking advice, but the profile of those reaching out to the advice profession doesn’t seem to have changed, as most advisers haven’t noticed a shift in the ethnic background, income level, or the number of women onboarded as clients.
However, advisers also felt they were prevented from reaching out to more people that don’t typically access advice, citing the cost of servicing these clients as too high.
Nick Eatock, chief executive of intelliflo, said: “Many advisers are prevented from helping a wider range of clients due to a lack of time and resources.”
Another poll by Avaloq found that investors are just as likely to consult their friends and family as they are to speak with financial advisers or wealth managers.
The main stumbling block seems to be the ability to pay for advice, with less wealthy savers unwilling to use professional support, the report said.
But there are supply side issues to, such as firms’ fears of mis-selling liabilities if the advice is not suitable and the economic viability of providing advice to lower net-worth customers.
To remedy this, the FCA has set out a number of new ideas, including reducing the required to advise on mainstream products to clients with straightforward needs and limiting the range of products available as well as providing new guidance on suitability obligations and the minimum information required to give advice.
The regulator also intends that this will bring down the overall cost of advice, which is typically around 3% as a one-off upfront payment and 1% per year thereafter.
“Research has shown that consumers are willing to pay for advice, up to a value of 1% of the sum to be invested,” its consultation paper said.
For consumers, flexible payment schemes could also be put in place, which should encourage people to seek advice. Anyone receiving one-time advice would therefore be able to pay for it in instalments, even if there are no follow-up annual fees required.
The proposal is now out for feedback, which is due by 28 February 2023, with a finalised policy expected in the spring.
Sarah Pritchard, executive director of markets at the FCA, said: “Now more than ever, people across the UK should have access to useful and affordable financial products and services which can improve their quality of life and support the economy.
“These proposals are part of our work to deliver a consumer investment market where people can readily access support and firms aren’t deterred from providing it.”
Tom Selby, head of retirement policy at AJ Bell, said the FCA was revising proposals first made more than a decade ago.
“Back then simplified advice failed to take off, in part because firms who offered it would have had to take on exactly the same level of liability as firms offering ‘full fat’ advice,” he said.
“While stripping back qualification requirements and creating a narrow set of investment options may be enough to tempt some firms into the market, the regulator will likely have its work cut out assuaging concerns about liability. Ultimately if something goes wrong, it is the firm offering the advice – whether simplified or otherwise – that will be on the hook.”