In a world of increasingly complex financial decisions, where politicians have decided to give individuals greater autonomy and responsibility for their financial future, it is clear that consumers should to be able to access professional financial help now more than ever.

The advice gap

However, with the Retail Distribution Review forcing advisory firms to shift their business models to cater to wealthier individuals, such professional help is usually out of reach for the poorer segments of the population. This and previous governments have been aware of this 'advice gap' and have tried to close it, not only by setting up public guidance bodies such as the Money Advice Service (MAS), The Pensions Advisory Service (TPAS) and Pension Wise but by conducting a Financial Advice Market Review (FAMR), which last year came up with several recommendations to broaden access to financial advice.

One of these recommendations was to redefine and clarify the definition of 'financial advice' to bring it in line with the MiFID definition, where a service is only classified as advice if there is a personal recommendation. The idea behind this came after feedback from firms saying that they felt nervous sending out generic information or reminders to clients about e.g. ISA (individual savings account) limits ecause this might fall into the category of financial advice.

A neater regulatory boundary

An alignment of the definition of financial advice with the definition provided by MiFID makes for a neater regulatory boundary, but if HM Treasury wants to encourage financial advisors to offer a broader range of services (including those that target consumers with simpler financial planning needs), then I believe that this falls short.  Conversations with APFA members and others in the advice community indicate that most firms will continue to offer a full advice service with all the costs that providing such a service entails.

The new definition might help (at the margins) by encouraging firms to edge nearer the boundary in terms of offering support to existing customers, such as reminders or other generic information. However, this might also allow firms to send out unregulated communications that appear to the consumer to be advice when they are not. The FCA should monitor market developments in the wake of any change to the definition of financial advice and be swift in offering further guidance should there be any cause for concern.

Simplified financial advice

In our response to FAMR, APFA called for the creation of a new category surrounding the provision of simplified financial advice. This would involve providing advisers with a ‘safe harbour’ governed by a set of simpler guidelines which would need to operate with a limited number of safe products (i.e. those which could essentially be suitable for anyone, thereby reducing the need for detailed information about the consumer but which would still require a personal recommendation). This would help fill the gap between full advice and guidance services and could be effective in broadening access to professional financial help as the safe harbour would give advisors the confidence to get involved in this area.

FAMR - a missed opportunity

Although some useful recommendations arose from FAMR, it was a missed opportunity and failed to suggest the kind of radical reforms that could help more consumers access professional financial help. For instance, the proposals regarding the Financial Ombudsman Service (FOS), a body about whose decision-making abilities advisors continue to have concerns, simply recommended further transparency and better communication with businesses. The review failed to remedy the absence of any independent right of appeal against FOS decisions – a cornerstone of natural justice.

FAMR also did not properly consider advisors' arguments in favour of a time-limit (or long-stop) of 15 years on liability for the advice they gave. Its final report airily dismissed the case for such a long-stop by saying that the number of cases it affected was small. It failed to take account of the uncertainty surrounding open-ended liabilities that makes advisers cautious when it comes to entering new markets or offering new services such as simplified financial advice.
 
The proposal to redraw the definition of financial advice to tie it to a personal recommendation is sensible. However both the re-definition in itself and the FAMR recommendations more generally will not encourage financial advisors to offer more simplified financial advice to those with simpler financial needs and situations. It is now up to the UK's financial advice community to push the government and regulator to do more to close the advice gap.