The words we use to describe certain things can make a world of difference to specialists in that particular field.
For example, to an interior designer, there is a whole spectrum of variation between a dusky rose paint and one of burnished mauve. Paul and Prue of the Great British Bake Off have also made it clear that, to a professional baker, the chasm of difference between a flaky and a rough puff pastry is so significant that mistaking the two is even more serious than producing a soggy bottom.
For those of us in financial services, the words causing a headache are advice and guidance.
But are such differences important to the consumer? Almost certainly not to the homeowner admiring their newly decorated living room; nor to the hungry shopper biting into a delicious sausage roll.
Similarly, it would probably not even occur to the majority of people to query whether they have just received advice or guidance. They just feel reassured to have received words of wisdom from an “expert”.
So, should the differences actually matter? In the first two cases, no. You like your walls and you have enjoyed your pasty. How you refer to them is purely a matter of semantics.
In the third instance, though, the difference between advice and guidance really does matter, and can have significant implications for both the giver and receiver.
In a column by Paul Lewis in Money Marketing last month – entitled “The end of advice as most know it” – he discussed the imminent arrival of a new financial guidance body to replace the Pensions Advisory Service, The Money Advice Service and Pension Wise.
For Lewis, a downside of this amalgamation and rebrand will be the Government’s ability to reclaim the words “financial advice” to refer solely to advisers.
Personally, I will be delighted to see the back of PAS, MAS and Pension Wise, a trio of white elephants which have cost an awful lot of money to do very little except further muddy the waters of understanding around advice and guidance.
One of the few points of Lewis’ article with which I do agree is his description of how the financial services industry views this issue: “…guidance tells people what they can do, while advice tells them what they should do”. Quite right.
Guidance can be someone’s opinion, a collection of soft facts to furnish a viewpoint, a suggestion of what they would do in the position of the person receiving the guidance and so on. Guidance can be many things but it can never be advice.
Advice can only be dispensed by those who are responsible and liable for it, by those who are qualified in their field and who meet requirements to keep their knowledge up to date in a structured and monitored manner every year throughout their career.
Those who give advice subscribe and adhere to the rules issued by a regulatory body, because they agree with that body’s principles of protecting consumers (if not always the way in which those principles are manifest through regulation).
An adviser can look at a client’s financial circumstances, their goals and aims for the future, and tell them not only which options are available to them but which would be the best solution.
And advice is not given lightly. When putting together a financial plan, an adviser is liable for the suitability of that plan for the client and understands the implications if it is not.
The implications for a consumer who follows unsuitable guidance, believing it to be advice, are equally serious, of course. But the person responsible for giving the guidance escapes any repercussions.
Unfortunately, Lewis is correct in his suggestion it will be those who have lower incomes and less to invest and save who end up with guidance as their only viable option, unable to afford the fees for an adviser.
This is not a good outcome as those with less spare money would often benefit the most from advice. But this is not a situation caused by advisers. We can thank the RDR for meaning those who cannot afford fees no longer have any access route to advice.
The situation is worsened if those receiving guidance believe they are receiving advice.
More needs to be done to help educate consumers on the vital matter of whether they are receiving guidance or advice. If the name of the new financial guidance body is a step towards adding some clarity, then it has my full support.
Matt Timmins is joint chief executive of The SimplyBiz Group