FCA encouraging wealth management for the masses

The Financial Conduct Authority (FCA) is set to relax independent advice rules concerning certain ISA investments. In what will effectively be a second-tier type advisory service, those looking to conduct their own wealth management will have greater opportunities to access professional guidance. While these proposals are still at a relatively early stage, with potential changes to the detail, they are aimed at making financial advice affordable to the masses.

 

Wealth management

 

While this proposal relates only to stocks and shares ISAs, it could be a precursor to even more significant changes in the wealth management industry. Consequently, comparing and contrasting these proposals against the broader cost of comprehensive wealth management is unfair. These arrangements can often involve hundreds of thousands, if not millions, of pounds of assets. Moreover, providing wealth management advice can range from income tax to capital gains tax, investment advice to inheritance tax and beyond.

 

Core investment advice

 

The new tier of advice has been dubbed "core investment advice" and will likely impact those with at least £10,000 in cash savings. It will also involve relaxing the independent/restricted advisor definitions, allowing firms to provide "independent" advice on stocks and shares ISAs while not necessarily considering the full range of options. However, brokers would still need to abide by broader FCA independent advice regulations for other advisory and wealth management services.

 

Additional proposals

 

The ongoing review of wealth management and advisory services has revealed several interesting concerns among investors. With reference to the "core investment advice" advisory tier, there are several other proposals:-

 

Payment of fees

 

While this will not impact wealth management and traditional advisory service fees, those incurred due to core investment advice may be paid in instalments. This would be the choice of the advisory broker but could make advisory services more affordable to the masses.

 

Continuous professional development

 

Currently, under existing wealth management and advisory services regulations, brokers have to undertake a minimum of 35 hours of continuous professional development each year. However, this minimum requirement will drop to 15 hours for companies solely offering core investment advice. In theory, this reduced training cost should free up funds to be used elsewhere.

 

Know Your Client

 

While the Know Your Client process with wealth management and advisory brokers is broad and comprehensive, it may be different under the core investment advice proposal. There is an overall aspiration to "simplify" information collection, although not much detail so far. Many will be watching this with interest, with a fine line between enhanced choice and protection.

 

Range of investments

 

While wealth management companies and traditional advisory brokers can offer guidance on a broad range of investments, this is unlikely to be replicated under the proposed regime changes. The core investment advice regulations will likely restrict the scope of assets upon which advice can be provided. This should simplify the process for both advisers and clients.

 

Robo-advice has had limited success

 

The Robo-advice industry in America has shown significant growth in recent years, but this has yet to be replicated in the UK. This is a process by which investment and financial planning are automated using a range of high-tech tools. There are high hopes that this type of service will reduce costs going forward, but mass-market acceptance is proving challenging.

 

Consumers dictating change

 

The subject of affordable advice is behind the new proposals by the FCA. Recent research shows that consumers looking towards a £10,000 investment would happily pay a 1% commission. This compares with a range of rates with wealth management and advisory brokers, which can vary up to 3%. Essentially, these proposals will encourage more face-to-face advisory services on a simplified and more cost-effective basis. Is this the first of many changes in the future?

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