By Jen Paice
WITH Christmas now a distant memory, hopefully your 2024 has got off to a flying start. If you’re inclined to make New Year’s resolutions, you might be a few weeks into a fitness regime or feeling the benefits of a healthier diet. There is something hopeful about a new year, giving us the chance to refresh, recharge and start again.
One thing that often falls to the bottom of the to-do list is a spring clean of our finances and thinking about longer-term investment plans. It’s understandable that this happens – the cost of living crisis is having a very real impact here in Scotland, and lots of us are having to prioritise paying for food, heating and other essential living costs before we even think about saving for the future.
Sadly, this has also meant that many people feel they’re not in a position to seek the guidance of a financial planner to make important financial decisions regarding their long-term finances. You might have heard this referred to as the “advice gap”. Only 11% of the UK population paid for advice in some shape or form in the past two years, meaning the vast majority are missing out on the support of a professional financial planner, according to The Lang Cat Advice Gap Report 2023.
Widening access to financial advice and solving the problem of the advice gap is something the Financial Regulatory Authority (FCA), which regulates financial services companies, is looking at closely. At the end of last year, the FCA issued its long-awaited discussion paper on the advice guidance boundary.
The advice guidance boundary is the line where financial advice, which results in a personal recommendation based on your individual circumstances, meets guidance, which is more general support around financial decisions. By looking at these definitions, the FCA aims to make it easier for people who may not have sought advice in the past get support with making financial decisions. The hope is that this will help more people improve their finances and get on a stronger footing for the future.
In its recent discussion paper, the FCA asked for feedback from financial advice firms on three proposals.
On clarification of what is advice and what is guidance, the FCA suggests making the distinction between financial advice and guidance clearer. This is crucial because the two concepts have distinct regulatory implications. Making the rules around where guidance ends and advice begins clearer would make it much easier for everyone to know where they stand.
Feedback that financial services firms could offer more targeted support to “people like you” suggests that firms would need less information on your individual financial circumstances and could instead suggest options based on what would be appropriate for customers “like you”. The idea is that knowing what has worked for similar people in similar situations should help you make better decisions with your own money.
The development of a simpler system for personal recommendations is to make it easier for advisers to offer a personal recommendation about just one part of your finances. If the rules were simplified, advisers would only need to know information relevant to the specific need, for instance investing a lump sum. The aim is to be able to offer a cost-effective simplified service to more people.
We have seen the difference that taking financial advice makes to people’s lives and fully support the regulator’s aim of widening access to advice so many more people can enjoy its benefits. Of course, the FCA’s discussion paper just sets out ideas for how the advice guidance boundary could change.
We’ll have to wait to see how and when the proposals develop into actual new rules, but it is a positive – and exciting – step in the right direction.
In the meantime, helping more people get started as early as possible on their long-term savings journey is definitely on my list of New Year’s resolutions.
Jen Paice is CEO of Aberdein Considine Wealth
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