Investors to get more help with saving and investing
The Treasury has published this week proposals to make it simpler and cheaper for consumers to get help, guidance and advice with their savings and investments.
The proposals are outlined in a consultation document, published here by HM Treasury.
Tom McPhail, Head of Retirement Policy - Hargreaves Lansdown comment:
“This is fantastic news for savers and investors. Not everyone wants to pay an adviser for personal financial advice but millions of ordinary people do simply want a little help to do the right thing and save for their future.”
“The Retail Distribution Review raised standards, banned commission and did much to protect investors, however in the process it also disenfranchised millions, leaving them unable to get any help at all. Investor protection should always be a high priority, however if it means that millions of people end up worse off because they can’t get the simple help they need to make good decisions and build their wealth, then it has gone too far. The recent work by the Treasury and the FCA (the FAMR review) is now redressing the balance.”
You can find out more about the FAMR review here.
Demand for advice
Financial advice is a high quality service, but one which most investors are unwilling to pay for most of the time. The government is taking steps elsewhere to make it easier for investors to pay for advice, for example by allowing them to access up to £500 from their pension for retirement advice, but most of the time, a fee-charging personalised recommendation is unlikely to be the right answer. Investors have typically indicated that most of the time they are unwilling to pay more than around £200 for advice.
Need for guidance
According to a recent survey by Hargreaves Lansdown, around 50% of drawdown investors are not paying for ongoing personalised advice. Whilst they may be happy to take responsibility for the decisions they take, many of these investors would benefit from ongoing financial guidance on issues such as tax planning, investment selection and income withdrawal strategies. With a more accommodating approach from government and regulators it will be possible for product providers and advisory businesses to give investors more help with:
- Online tools and calculators
- Telephone helplines
- Income modelling tools
- Risk controls
Investor security and fraud prevention
It is important to note that in the majority of cases, under the Treasury’s plans guidance will be given by regulated businesses which are covered by Financial Conduct Authority regulations, the Financial Ombudsman Service and the Financial Services Compensation Scheme. As the Treasury rightly points out, this development may well also reduce fraud and consumer detriment by making it easier for investors to get help from a regulated business rather than turning to unregulated businesses with higher risks of losses or fraud.
Following this consultation, attention will turn to the FCA and the implementation of this policy change, as well as their forthcoming consultation on delivering Guidance. There is also outstanding work on:
- Creating portable fact-finds
- Developing simple planning rules of thumb
- Building the Pension Dashboard
- Finalising rules for the £500 pension advice facility, as well as allowing employers to give up to £500 of workplace advice as a benefit in kind
What is the difference between “advising on investments” under the Regulated Activities Order and “investment advice” under MiFID?
The regulated activity of ‘advising on investments’ under Article 53 of the Regulated Activities Order (RAO) is wider in scope than ‘investment advice’ under MiFID. This is because MiFID requires advice to be of a personal nature whereas the RAO does not.
For advice to be regulated under Article 53 of the RAO, it must:
- relate to a relevant investment, which includes contracts of insurance
- be given to a person in their capacity as an investor or potential investor (or in their capacity as agent for an investor or potential investor)
- relate to the merits of them buying, selling, subscribing for or underwriting the investment (or exercising rights to buy, sell, subscribe for or underwrite such an investment)
MiFID investment advice involves the provision of personal recommendations to a customer, either upon the customer’s request or on the firm’s initiative. It comprises three main elements:
- there must be a recommendation that is made to a person in their capacity as an investor or potential investor (or in their capacity as an agent for an investor or personal investor)
- the recommendation must be presented as suitable for the person to whom it is made or based on the investor’s circumstances)
- the recommendation must relate to taking certain steps in respect of a particular investment which is a MiFID financial instrument, namely to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument (or exercise a right to buy, sell, subscribe for, exchange, or redeem a financial instrument)
NOTES TO EDITORS
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