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FAMR panel: No evidence changing ‘advice’ and ‘guidance’ will boost understanding

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FAMR working group chair Nick Prettejohn

There is “no evidence” that changing the terms “advice” and “guidance” would help consumers understand when they are taking regulated advice, the Financial Advice Market Review’s working group has found.

In its report today, the 15-strong industry panel says that advice and guidance should be kept as words used to describe services because other suitable words could not be found.

However, advice and guidance should always have explanatory notes and caveats attached to them to make the meaning more evident to clients, the group says.

Its report reads: “On the terms for advice and guidance, there is no evidence that changing the terms will improve consumer understanding and no strong support for any of the alternative names.

“However, there is strong evidence of traction with consumers once consumer friendly explanations of the terms are used in conjunction with the terms themselves. Further, there is greater traction when the explanations are used as a pair, rather than on their own.

“These are important insights and offer potential for a great improvement over the status quo, where multiple terms and definitions confuse consumers (not to mention many others). However, that potential will only be realised if regulators and providers of ‘advice’ and ‘guidance’ actively and consistently use the terms and suggested explanations.”

Money Marketing reported last week that the working group was preparing to recommend keeping the terms advice and guidance in light of its consumer research, and was set to recommend financial rules of thumb to consumers such as “pile into your pension”.

Turning potential into reality

Scottish Widows chairman Nick Prettejohn, who is chairing the FAMR working group, urged the FCA, the Money Advice Service and the Treasury to carry forward the panel’s work for it to be a “successful reality”,

The establishment of the working group was recommended in the final FAMR report and a foreword to the working group’s report published today gives an update on its work related to the three FAMR recommendations it was assigned.

The working group was tasked with publishing a shortlist of potential new terms for “guidance” and “advice”, but also with working with employers to develop a guide to the top 10 ways to support employees’ financial health, and to lead a taskforce to design and test a set of rules of thumb and nudges to encourage consumer engagement around their finances.

The group also published separate reports on the thumbs and nudges recommendation and the new terms for advice and guidance.

The group has called on those other agencies to ensure its work is taken forward, saying it would be a “profoundly unsatisfactory outcome” if its recommendations are not taken forward.

The foreword says: “For continuity, the [working group] will look to its members who sit on the FCA Smaller Business Practitioner Panel and Financial Services Consumer Panel to hold the Treasury and the FCA accountable for timely implementation of our recommendations and to track their ongoing progress.”

When a nudge is needed

On rules of thumb and nudges, the working group emphasises it will be important for industry communications to be “sales free” given the “widespread distrust of financial services firms” that were expressed by consumers in its research.

The working group research showed the idea of nudges was welcomed by consumers, many of whom are focused on present financial needs – managing debt and making income go further – with pensions and savings being out of reach for many people.

The foreword says MAS and its successor should test the rules of thumb and nudges in conjunction with “nudge agents”, such as  regulators, government bodies, employers and voluntary organisations.

It adds: “There is a real opportunity to use technology to reach a wide cross-section of people – and a challenge to develop nudges that work for the digitally excluded. It will be important for the industry to ensure its communications are ‘sales free’, given the widespread distrust of financial services firms consumers expressed during the research. Equally, the regulatory framework for personalised communication should allow for appropriate nudges to occur.”


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