The Treasury Sub-Committee on Financial Services Regulations has published its letter to the FCA on the proposed new core investment advice regime and the FCA's response.
Proposals for the new regime were set out in the FCA's consultation paper (CP22/24) published on 30 November 2022. The CP on "Broadening access to financial advice for mainstream investments" detailed proposals for a new core investment advice regime, aimed at facilitating greater consumer access to simplified advice on investing in mainstream products (specifically within stocks and shares ISAs). See our blog post on CP22/24 here.
The proposals included a new definition of core investment advice, the introduction of new guidance on suitability requirements when carrying out core investment advice, greater flexibility in associated charging structures and reduced qualification requirements for relevant advisers.
The FCA's response to the Treasury Sub-Committee included the following key points:
- The FCA expects core investment advice fees to be lower compared to the current average fees for holistic financial advice and, in line with the forthcoming Consumer Duty, charges will need to be fair value for the target market. However, the FCA expressed concern about providing an anticipated price point on the basis that this could be misunderstood by the market as a ‘regulator-approved price’, potentially limiting competition.
- The proposals seek to reduce the regulatory costs to advice firms by reducing the qualification requirements for core investment advice and build upon previous policy interventions aimed at encouraging firms to offer cheaper and more streamlined advice.
- The FCA would expect firms to have appropriate processes in place to triage potential clients effectively and ensure that those with more complex financial needs are identified as requiring services beyond core investment advice.
- While stocks and shares ISAs are an appropriate investment vehicle for many consumers due to their tax-efficiency and relative simplicity, firms will still need to assess suitability for each client.
- Firms concerned over mis-selling risk should take comfort from the FCA's draft guidance detailing how key elements of core investment advice should be delivered.
- The FCA will use any relevant feedback from the consultation to inform its review of the wider advice/guidance framework which it has committed to start in Q1 this year.
The FCA's response provides additional insights into how the FCA envisages the new regime working, although the consultation remains open for comments until 28 February 2023. The FCA will then look to publish a final policy statement and final rules and guidance in Spring 2023, with implementation targeted for March 2024 at the latest.