Greetings. Mike here to take you through all the highlights from the FCA’s latest CP, CP26/10 – “Simplifying the Pension and Investment Advice Rules”

After enjoying the irony of a 166-page document all about simplification, the first skim read generated mostly positive scribblings on my notepad. You can read the full details from the FCA here.

Those nice folk at Citywire have described this paper as “landmark proposals”, and as is normally the case, they are right. As you would expect from a 166-page document there is lot of detail, but given this is supposed to be a brief update I’ll focus on two main areas – dropping the requirement for annual suitability reviews and the discussion on the future of trail commission.

First up, suitability reviews. The FCA is proposing to remove the annual suitability requirement when advising on MiFID business (finally, a Brexit benefit). Firms providing an ongoing advice service will instead be subject to a more flexible obligation to conduct periodic suitability assessments and to determine the most appropriate review frequency based on an assessment of customer needs and circumstances.

This feels like a positive move, aligning ongoing reviews to the needs and preferences of the client rather than a rigid 12-month period. As with current rules, firms will be able to choose the channel or combination of channels that these reviews are delivered through, so technology should do a lot of the heavy lifting here. If not delivery, tech will certainly need to help with segmentation and controls/oversight etc.

There are a few challenges here though. Firstly, as with client vulnerability, the need for a review will evolve over time. Looking back over my last few years I would have pivoted from little/no need for an annual (or any?) review into a period when annual wouldn’t have been enough. Good advisers and planners are close enough to their clients to recognise this and adapt services accordingly, but I wonder if this will be something that will become harder to achieve at scale.

Beyond that, probably the biggest concern for the advice sector for all of these changes will be how aligned FOS proves to be down the line. The discretion advisers will have to “to determine the most appropriate review frequency” is welcome but is also subjective. Advisers will be worried about how FOS might view things and as a result might err on the side of caution rather than driving the change the FCA is looking for. There is also potentially a knock-on impact into the PI markets here.

If that wasn’t enough excitement, CP26/10 also invites a discussion “on the impact trail commission payable to advisers and commission for non-advised distribution is having on consumers and the market”.

It is important to note that whilst the ongoing advice changes above are part of a formal consultation, with the promise of a policy statement by the end of the year, the trail commission discussion is exactly that, a discussion. It is also one that reads more as ‘we are looking into it’ rather than ‘we are definitely going to do it’.

The FCA is right to grasp this particular nettle, however it is equally right to be treading carefully. There are all manner of unintended consequences, most notably the client outcome to consider. Pre-RDR trail commission tends to be labelled with negative connotations, however in a lot of cases the best outcome for the client will be to remain invested where they are.

13% of advice sector revenue comes from trail commission, but it is far from as simple as saying this should be switched off. From the adviser’s point of view they are not subject to explicit regulatory requirements to provide an ongoing service in return for legacy trail commission. From the client’s point of view if this commission is turned off in most cases you won’t be able to replace it with a facilitated adviser charge, creating a risk you surrender a product that could not only contain valuable features, but also will generate a chargeable event in doing so.

It will be interesting to see how this discussion plays out but I wonder whether the huge amount of complexity and potential for negative customer outcomes will mean things won’t progress to any formal changes. This is, after all, a problem that will naturally go away over time as these older products mature or are surrendered. One final thing that strikes me for all of this is how important it will be for the advice profession to input to the consultation. We will be collating views from our 1,600+ strong advice panel (see below) to provide a collective voice into this process, and I’d welcome any views panel members might have. These changes will impact each and every advice firm in the UK. Make your voice heard.

And to close, enjoy some Labi Siffre.