The FSA will next month reveal further details of the "basic advice" regime which is now being implemented from April 2005.
That said, the Financial Services Authority has decided not to include its proposals for a simplified process in the sale of ‘smoothed investment funds’ at this stage as there are still concerns in its research the consumer does not fully understand the differences and risks between smoothed funds - otherwise known as “with-profits” - and their additional layer of complexity and unsmoothed investments.
According to the FSA, its further testing of the basic advice regime has now convinced the FSA it should allow simplified ‘stakeholder’ products, such as stakeholder pensions and Child Trust Funds, to be sold by introducers who do not have full advice qualifications under a scripted generic advice process.
Original proposals which led to the basic advice regime were first proposed by Ron Sandler when he recommended the government create a range of simplified products which could be bought “off the shelf”, without the need for financial advice which would not run the risk of “mis-buying” claims.
Since then, the FSA has conducted three series of research to assess whether consumers understood the products being presented, whether they were suitable and how that advice compared with advice given by independent financial advisers.
In earlier testing, the FSA still had flaws in the script process to iron out, and as recently as last month the Financial Services Consumer Panel and LIA suggested, in their responses to CP04/11 the regime could still have problems.
However the FSA's consultation and consumer testing of basic advice has highlighted some concerns regarding the proposed Smoothed Investment Fund (SIF), and consequently the FSA will not include it in the basic advice regime at this stage.
Dan Waters, FSA director of retail policy, says its research since CP04/11 indicates basic advice will allow most stakeholder products to be sold “simply and cheaply to consumers in a way that could result in significant benefit to consumers“.
"The research also showed, however, that while most consumers could understand in simple terms the concept of smoothing, the differences between the smoothed and unsmoothed stakeholder products were harder to get across. We remain concerned about the additional layer of complexity that smoothing represents in the context of basic advice, and the extent to which the benefits and risks involved can be explained to consumers in a balanced way in that process.
Further research will now be conducted in the smoothed investment sector while the industry awaits details of the new basic advice regime.
Earlier IFAonline stories on the basic advice regime include:
IFAs will not be able to use 'basic advice' regime - AIFA(Monday 21st June 2004)
LIA warns FSA on simplified advice( Monday 13th September 2004
Basic advice regime still detrimental to consumers - FSCP(Tuesday 14th September)
Nine in 10 do not have income protection
Set to become part of Single Financial Guidance Body
Also plan to scrap NI on contributions
Eight-week high against US dollar
Lower cost option for advisers