UK FCA proposals on new core investment advice regime

The FCA’s proposals on a new core investment advice regime were set out in FCA consultation paper 22/24 ‘Broadening access to financial advice for mainstream investments’ (CP22/24) published on 30 November 2022. Given the date for final responses to CP22/24 is fast approaching (28 February 2023), we thought it would be useful to provide a recap of the proposals.

Broadening access to financial advice for mainstream investments

The new core investment advice regime proposes:

• Greater access to simplified advice - allowing firms to provide mass‑market consumers with straightforward financial needs greater access to simplified advice on investing in mainstream products, specifically within stocks and shares ISAs (S&S ISAs).
• Proportionate fees - making it easier for firms to provide advice that is proportionate to the needs of the consumer at a lower cost.
• A new definition – introducing a new definition of ‘core investment advice’ in the FCA Handbook Glossary.
• Narrower suitability requirements - reframing the existing suitability requirements to reflect the narrower scope and complexity of the financial advice relevant to the decision that consumers will be making. 
• Greater flexibility - allowing greater flexibility in charging structures to allow consumers to pay for transactional advice in instalments.
• Narrower training and competence standards – proportionately reducing the existing qualification requirements and training and competence standards to reflect the lower risk of the narrow scope advice, focused on only the necessary technical and regulatory understanding to advise on mainstream investments.

Further insight from the FCA on the new core investment advice regime

On 20 December 2022, the Treasury Sub-Committee on Financial Services Regulations of the Treasury Committee corresponded with the FCA on the proposed new core investment regime.  The FCA response dated 9 January 2023 provides additional insight into how the FCA will look to implement the proposals. The FCA’s response provided further details as follows:

• The FCA expects core investment advice fees to be lower compared to the current average fees for holistic financial advice. In line with the forthcoming Consumer Duty, charges will need to be fair value for the target market. Core investment advice fees will vary between firms depending on the nature of the service that they provide, the structure of their advice process (for example, how technology and/or advisers deliver the service), and commercial decisions on the level of fees they wish to charge consumers.
• The revised qualifications for the core investment advice regime are commensurate with the narrower scope of the advice to be given.  Firms should have appropriate processes in place to triage potential clients effectively.  As part of the suitability assessment process, firms must ensure that those with more complex financial needs are identified as requiring services beyond core investment advice.  Core investment advisers will not be required to pass additional examination modules outside of the scope of core investment advice for example on retirement planning or protection planning.
• Stocks and shares ISA products are considered an appropriate investment vehicle due to their relative simplicity and tax-efficient nature but they will not be suitable in all circumstances, which is why firms will still need to assess suitability for each client they advise.
• The FCA has drafted detailed rules and guidance contained in Appendices 1 and 2 of CP22/24 setting out its expectations of how key elements of core investment advice should be delivered. This should be incorporated into firms’ advice and compliance checking processes to avoid any concerns over mis-selling.  CP22/24 provides firms with an opportunity to feed into the proposals providing any feedback on the guidance before it is finalised.
• The FCA is going to undertake a review of the wider advice/guidance framework commencing in Q1 2023.  Any feedback from CP22/24 will be used to inform the wider review.

Next steps

Subject to the responses received, the FCA will look to publish a final policy statement with finalised rules and guidance in spring 2023, targeting implementation of the regime before the end of the 2023/2024 financial year (ie end March 2024) so firms can start to offer core investment advice from the beginning of April 2024.

Authored by Michael Thomas and Melanie Johnson.