The Association of British Insurers (ABI) has released new guidance on basic advice which aims to help providers understand and interpret FSA regulation and improve consumer knowledge and confidence.
In the Model Guide for Customers on Basic Advice, the ABI defines basic advice as “a short, simple form of savings and investment advice, which could suit many people, including those who are new to saving and investing, or those whose financial needs are straightforward”.
The guide says advisers must ask consumers standard questions to assess whether a particular stakeholder product is suitable for them. The stakeholder range includes a pension, medium-term investment products, a Child Trust Fund and a cash deposit account.
The ABI says a new Frequently Asked Question (FAQ) on the Financial Ombudsman Service (FOS) website relates to how the FOS would deal with a complaint about the sale of a stakeholder product through the basic advice process.
The FAQ states: “We will assess the complaint on the understanding that the customer received basic advice. We will not, for instance, expect a factfind to have been completed nor for the adviser to have made detailed enquiries to ‘know’ the customer.”
The ABI Guidance for Providers of Basic Advice therefore says the adviser should base recommendations on the customer’s answers to pre-scripted questions but the adviser should make it clear to the customer this is the basis of recommendations and account will not be taken of issues not covered during the sales process.
The guidance says: “The adviser is not required to ask the customer about every conceivable factor that may influence suitability or to respond to information disclosed by the customer that has no obvious impact upon suitability”.
But, the guide also says if the customer discloses major information regarding their circumstances that is “obviously relevant” to suitability – such as imminent redundancy or parenthood – then the adviser should assess whether the information could have implications for recommendations.
Standard questions advisers should ask include: how much money a customer has left after paying for essentials; whether the customer has life insurance cover; what the customer’s timeframe and aims are for saving/investing; whether the customer is comfortable with some risk to their money; and whether the customer has access to a work-based pension.
The guide says advisers must be clear about the nature of investment risk in relation to stakeholder products. The adviser should “use plain language to explain the risk and ascertain the customer’s willingness to accept the risk of loss of capital”.
If a customer decides to save or invest in a stakeholder product, an adviser cannot make recommendations on how much they should save or invest but can provide information to help the customer make this decision, for example the ABI pensions calculator.
The guidance says companies should have good systems and controls for their basic advice operations, including scripts or computerised processes to prevent a basic advice interview going into inappropriate areas and evidence staff are trained in the use of such systems.
The ABI adds that the guidance should be read alongside the
Chris Kenny, the ABI’s director of life and pensions, says: “The ABI wants the basic advice regime to work. The insurance industry, government and the regulator should continue to work together to ensure that messages about the importance of saving for retirement get across to as wide a range of consumers as possible.”
Kenny continues: “We hope that this guidance, together with the FSA’s own Q+A material, will boost consumer understanding both of what basic advice is and what is expected of financial advisers who offer it. This will help to give greater momentum to the basic advice market.”
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Joined as head of strategy, multi asset, in June
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