The Financial Conduct Authority’s (FCA) forthcoming paper on simplified advice could stop firms from over-complying and help reduce costs, according to the regulator’s head of savings, investments and distribution policy David Geale.

In May the FCA announced that it would be publishing a consultation paper and guidance over the differences between full advice, simplified advice and non-advice within the next few weeks.

Geale who oversaw later stages of the implementation of the retail distribution review, said that the guidance would help firms understand how to simplify their advice processes and could help reduce compliance costs.

• ‘Advisers are very clear on what full advice is and what execution-only is, what they are not aware of are the things they can do in the middle,’ he said.
• ‘So things like simplified advice they don’t play in that space. People struggle to understand our boundaries are so we’re putting out a paper to help them navigate.’

In April FCA technical specialist Rory Percival warned advisers they were driving up their costs by being ‘over-compliant.’

He said that some firms were maintaining processes that go above and beyond the regulator’s requirements.

Geale said that the FCA’s work on simplified advice would help explain to firms what steps they would need to take to be compliant for certain advice processes.

• ‘If firms are going for belt, braces, another belt and braces and all they really need is a belt, then it will help. It will help in understanding what our expectation is, and rather than perhaps being super compliant they need to understand what our expectations [are] and build a service that works for consumers around that,’ he said.

He added that some of the current automated and simplified advice models still applied a full advice process, which was not necessary.

• ‘It’s possible for clients to say “I want to talk about using my tax free allowance this year”. If that’s all they have to say and that’s all they want to talk about and they don’t want to be talked about anything else then you can do it on automatic basis,’ he said.

Cost of compliance

The cost of compliance and regulation is, as ever, a hot topic of debate for advisers. In March the regulator reduced the amount advisers would pay in regulatory fees by 19%.

The FCA said there was an anomaly in the way the fees were calculated which resulted in firms that held client money, and had more regulatory burden, paying less than most advisers.

However, the regulator antagonised some advisers by quietly dropping its planned ‘back to basics’ review of its whole fee-raising regime.

The Association of Professional Financial Advisers recently hit at this decision and called for the regulator to prelaunch the review. The trade body claimed advice firms spent 12% of their income on regulation.

Geale disputed that those costs could entirely really be accredited to the FCA’s rules.

• ‘In terms of the cost of being regulated: how much of that is the cost of regulation and how much is it a cost of business practice?’ he asked.
• ‘A good well- run firm should keep records, regardless of if the FCA are forcing them to do it or not. You might expect them to deal with their customers in a particular way and find out particular information and so on regardless of if the regulator has asked them to do it or not.’

He added that 42% of advisers paid the minimum regulatory fee of £1,000, which the FCA has frozen for 2014/15. http://bit.ly/1i7MEOF