The UK regulator’s proposal to simplify financial advice is the “wrong solution” to the problem of British savers hoarding cash, according to the head of AJ Bell, one of Britain’s largest investment platforms.
Michael Summersgill, who took over as AJ Bell’s chief executive this year, welcomed the Financial Conduct Authority’s attempt to address the 4.2mn people who have more than £10,000 in savings whose value is being eroded by higher inflation.
But Summersgill said the FCA’s proposal risks savers ending up in more expensive investment products.
“I’m worried that the cost of that simplified advice all told might be far greater than it might appear,” said Summersgill. “The regulator is focused on the right problem. I think simplified advice is the wrong solution.”
The investment industry has been pushing the regulator and lawmakers to loosen the rules around financial advice, which critics argue have made these services too expensive for most consumers. The strict standards have been blamed for the UK “advice gap”, referring to the number of people who might benefit from expert help in selecting their investments but who are not willing to pay fees equating to about 3 per cent of their portfolios for the service.
The FCA on Wednesday proposed to address the gap by creating “a separate, simplified financial advice regime, making it cheaper and easier for firms to advise consumers about certain mainstream investments within stocks and shares ISAs”.
The scepticism from Summersgill is in contrast to the reaction of AJ Bell’s largest rivals.
Richard Wilson, chief executive of Interactive Investor, said the proposal was a “watershed moment” and an example of “right-way-round thinking from the regulator. It’s a big deal”.
Hargreaves Lansdown’s outgoing chief executive Chris Hill said it was “great” that the FCA had recognised “today’s all-or-nothing approach to advice doesn’t suit everyone”.
Summersgill said he doubted most financial advice firms could make enough money under a simplified regime to cover their costs and justify the risks associated with giving regulated advice, particularly given the £20,000 annual limit on ISA contributions.
He expects the only firms that could make the new system commercially viable would be “vertically integrated” players who direct consumers to their own, in-house investment products. This risks clients paying more but having the cost of advice disguised in pricier investment products.
“I’m not saying that it necessarily results in a bad outcome, but there is a conflict there that needs to be managed. I’m just not sure it’s the right solution for the problem,” Summersgill said.
Instead, he favours proposals from industry bodies for the regulator to permit “personalised guidance”, which would allow platforms like AJ Bell to use customer data to point their clients towards better financial decisions. Current rules make it difficult for platforms to provide “nudges”, like pointing clients to a cheaper alternative to an investment fund.