Advisers raise 'systemic mis-selling' risk of simplified advice models

clock • 2 min read

Advice firms have raised fears over "systemic mis-selling" through simplified advice and said ongoing regulatory uncertainty has stifled market developments, according to the Financial Conduct Authority (FCA)

The regulator's latest thematic review found many firms had not developed a simplified advice model due to concerns about suitability standards and fears over automated advice processes.

It added advisers were also worried about "systemic mis-selling".

"Firms are concerned that automated advice processes providing personal recommendations could result in systemic mis-selling if parts of the process produce unintended, unsuitable recommendations for certain groups of customers," the report explained.

"This led many firms to include significant compliance and mis-selling liability costs within their business plans, limiting their commercial viability."

The regulator said it had visited firms and engaged in wider discussion with trade bodies to assess the barriers to development.

It explained some firms were uncertain on suitability standards for delivering personal recommendations online, "particularly the necessary ‘breadth' of the suitability requirements for advice on a focused scope".

The FCA said firms wanted better and clearer guidance on suitability.

Firms were concerned that if they deliver simplified advice online using a contingent adviser charging model - where the customer receives a personal recommendation ahead of paying to implement the recommendation - their customers may decide to take the firm's personal recommendation and then transact it on an execution-only basis with a different firm.

"Firms believe that if they have an advice liability for these ‘incomplete' transactions (which could be numerous), the risk premium they need to price into their business models challenges their commercial viability," the thematic review said.

foslogoEven if the regulator could sort out all these problems advisers said they were still concerned about how complaints on simplified advice would be dealt with by the Financial Ombudsman Service.

"Now that the ombudsman service publishes ombudsman decisions, firms believe this could result in significant, focused activity by claims management companies."

The issues had led a number of major firms to conclude simplified advice was not "currently commercially viable".

Read: The service that might just turn the simplified advice tide <

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