PIMFA raises concerns over impact of FCA’s simplified rules on firms providing holistic advice

The Personal Investment Management & Financial Advice Association (PIMFA) has issued its response to the Financial Conduct Authority’s (FCA) consultation on simplifying pension and investment advice rules, raising concerns about how the changes to suitability will affect firms providing holistic financial advice.

While the association said it supported the intent behind the regulator’s proposed changes to suitability, alongside several other proposed reforms to the simplified advice and ongoing advice services regimes, it called for clarity and guidance to ensure the rules met their desired outcomes.

“It is right that the FCA has sought to address some of the structural barriers which prevent firms from making meaningful progress towards closing the UK’s financial advice gap – their ambition is welcome,” stated PIMFA head of public affairs, Simon Harrington.

“The repositioning of ‘necessary’ information to ‘sufficient’ when determining suitability not only marks a significant departure from the current rules, and in theory removes some of the existing frictions which exist in the current advice process.”

Harrington noted that while PIMFA supported this change, as it gave firms more flexibility within their current propositions, it was unclear whether it would lead to the development of simplified advice propositions among established advice firms in the manner the FCA wanted.

The association saw issues with the proposals that begin with the envisaged consumer journey, particularly how firms can come to the conclusion that people could benefit from a simplified form of advice without undertaking a holistic fact find.

“Without clarity on this issue, the repositioning of the advice rules, welcome as they are, risk being rendered less impactful in practice,” Harrington warned.

“Clear guidance is needed on the scenarios where ‘sufficient’ information could be used to deliver a simpler form of advice, and how this differs from ‘necessary’ information in the current framework.

“The FCA must also set clear expectations for firms in instances where they become aware of information not material to the delivery of limited scope advice, but which could have wider implications for the client’s broader financial circumstances.”

Regarding proposals related to ongoing advice, PIMFA said it felt the FCA had provided firms with the flexibility needed to deliver a good value ongoing service to clients while providing them with scope to design innovative propositions for different client segments.

However, it urged the regulator to provide greater clarity around its supervisory expectations, what it considers to be ‘good’ and ‘poor’ practice, and how the impact of the changes will be monitored.

Furthermore, PIMFA welcomed the FCA opening a discussion around legacy trail commission arrangements, stating that it strongly believed the existing arrangements should be maintained.

“Closing the financial advice gap requires a full continuum of support which can support consumers at every stage of their financial lives,” Harrington said.

“These reforms have been set out with clear intent to drive better outcomes, and the FCA deserves credit for its collaborative approach and clear display of ambition.

“That said, some uncertainty remains, and the regulator must go further to address key structural barriers holding back progress. With some refinements, particularly to the proposed suitability requirements and the guardrails for simplified advice, we believe these changes can drive genuine progress.”

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