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FCA: Advice boundary ‘almost impossible’ to define

The boundary of where financial advice starts and information begins is “almost impossible” to define, the FCA has said.

Speaking at the FCA’s annual public meeting this morning, chair Charles Randall noted the difficulties of defining the advice perimeter in the context of the recent collapse of mini-bond provider London Capital & Finance.

Treasury to probe mini-bond regulation after LC&F collapse

The Financial Services Compensation Scheme has rules that a marketing company used by LC&F did in fact give “advice” and not just generic information to consumers, meaning they could be able to claim redress from the lifeboat fund – paid for by regulated financial planners.

In a press conference following the event, FCA chief executive Andrew Bailey and FCA executive director of strategy and competition Chris Woolard discussed the issue further with Money Marketing.

The FCA harmonised the definition of advice with Mifid II on the back of its Financial Advice Market Review so that to qualify, discussions must include a “personalised recommendation”.

Money Marketing asked if this had gone far enough to clarify what regulated advice entailed.

How did the FSCS look for ‘advice’ in the London Capital & Finance case?

Bailey noted that the circumstances of LC&F were particularly complex.

Woolard said: “Taking a particular case then extrapolating from that is not a conclusion I should be reached”.

Woolard added: “We said at the time of the RDR and FAMR review we would take steps to review how firms were implementing them; are they actually implementing them for consumers in terms of access to advice.

“That is a process we expect to continue to do over the course of the year looking at areas where the system can be improved and where it’s working well.”

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. Sounding more like the opening and closing edits of TV sitcom SOAP every day.

    For those under a certain age these were:

    “Confused? You won’t be, after this week’s episode of…”

    and

    “These questions—and many others—will be answered in the next episode of….”

  2. Well that’s cleared that up then ?

    This either bad reporting from MM or Bailey is lost in “complex” confusion and hasn’t really got a clue whats going on, Woolard has taken a leaf out of Percival’s old notes, and talks in gobbledygook, and the Chairman, Randell is into mythical beasts …and implies advice is impossible to define…like the Unicorn playing hop scotch with the minotaur (are either of them Scottish ? and can they really hop ? )

    After this enlightening article, I have a vision of Megan (wassername) strutting around FCA offices, threatening every-one like some wild shield maiden on Tramadol, and on her 6th bottle of Buckfast tonic ?

    What I ask, what the heck is going on at the FCA ?

  3. I can’t understand why it can’t be clearly defined.

    I realise some (like Paul Lewis) suggest that advisers are trying to ‘monopolise’ the word, advice, but where it isn’t clear, issues can (and do) arise.

  4. To paraphrase…

    “Our definition of advice is almost impossible to define but we will hold advisers to account for failings in this definition. Indeed, we’ll make advisers pay for anything any regulated firm does that’s connected to our definition of advice that can’t be defined based on our interpretation of the definition (or our close associate’s interpretation) at any point in time. We hope that’s clear. And fair. And not misleading.”

    The four basic rules of law:

    1. The government and its officials and agents are accountable under the law

    2. Laws are clear, publicised, stable, fair, and protect fundamental rights, including the security of persons and property

    3. The process by which laws are enacted, administered, and enforced is accessible, fair, and efficient

    4. Access to justice is provided by competent, independent, and ethical adjudicators, attorneys or representatives, and judicial officers who are of sufficient number, have adequate resources, and reflect the makeup of the communities they serve.

    So, how is the adviser community doing these days?

  5. Julian Stevens 17th July 2019 at 3:15 pm

    “Taking a particular case then extrapolating from that is not a conclusion I should be reached”. What’s that supposed to mean?

    As for “The FCA harmonised the definition of advice with Mifid II on the back of its Financial Advice Market Review so that to qualify, discussions must include a “personalised recommendation”. Okay.

    Is this a good investment? Yes. That’s opinion, not advice.

    Is this a good investment for me? Yes. That’s advice, not opinion.

    FFS, why can’t the FCA for once just cut through the crap and issue clear guidelines?

    • “Is this a good investment? Yes.” It sounds straightforward – but what do you mean by “good”? Is it good for everyone, regardless? Does the client read into that “This is a good investment (for me)”? (Well, maybe that depends on what else you have said to them, for instance if it is in the context of a discussion of investments that they might considering – especially if you have already asked them about their circumstances, aims and goals. Or if it is on a website open to anyone where they have not provided any personal information that says “The following are good investments”.) If you are telling someone it is a good investment, why would you do that? Is it an implicit recommendation?

      The issue is fraught and not straightforward – which of these is advice?
      – I recommend you buy this
      – I think you should consider these and see which you think is best for you
      – People like you buy this
      – If I were you I’d buy this
      – I’ve bought this myself
      – This is a good investment
      – In a recent survey of people who have a portfolio similar to yours, they also bought this

  6. David Bashforth 17th July 2019 at 9:21 pm

    Just look at the FCAs Triage guidelines to see how they define advice re DB pensions. It’s basically impossible NOT to give advice if you have any details about the pension on file.

    Look guys, it’s really not that difficult is it? You have not received advice unless:

    A – you have seen a regulated adviser listed on the FCA register ( oh wait a minute, that’s being scrapped shortly due to SMCR)

    B – You’ve paid for said advice or had agreed that it would be pro bono

    C- been furnished with a suitability report

    And speaking of rules, well we only need one in reality, ALL our dealings should be undertaken on a fiduciary basis where clients are concerned. Where companies have not, they should have the book thrown at them. Please explain how the FCA have no authority to issue sanctions against RBS for their GRG horrendousness and the untold suffering and misery caused? What a joke.

    • Just taking your ABC here:

      A – The adviser is the business not the individual, and that’ll still be on the register. And just because someone’s not authorised doesn’t mean they don’t advise (it just means they’re committing an offence when they do).

      B – The test is whether it’s done by way of business; if I don’t pay your bill it doesn’t mean you haven’t advised me.

      C – That’s what should happen, but the absence of an SR doesn’t turn advice into not-advice.

    • David Bashforth 19th July 2019 at 8:43 pm

      Hi Adam,

      Taking your ABC

      You can’t give advice unless you are a regulated individual and are named as such on the FCA register, albeit via a regulated firm which ultimately carries the liability. I believe the client has a right to access a register to check both the firm and the individual. They also have to shoulder some responsibility for understanding what constitutes advice ( assuming the FCA can make it clear )

      If you have not entered into a contract with an adviser, i.e signed a terms of business, and complied with the terms of that contract i.e paid, then you have not received advice.

      Said contract would outline the the terms of service which would include provision of an SR as required under Mifid.

      Any system that is so complex it is unexplainable by its creator is fundamentally broken, unless…..it is actually that way by design, allowing for enough creative ambiguity for the powers that be to make it fit whatever travesty they have presided over. A la London Capital.

  7. Let’s be honest, the LC&F sales reps didn’t actually give advice. The “rules” are just being bent so that advisers pick up the bill, the “investors” get their money back and the heat for the FCA and Government dies down. When the definitions are changed for expediency, the logical conclusion is that the rules become “almost impossible” to define.

    For advice to be given there must be a factfind, risk assessment, fee agreement and a suitability report with a personal recommendation from a qualified and regulated individual with PI cover. This could be very simple. Instead the FCA preside over a regulatory landscape whereby unqualified and unregulated individuals employed by an unregulated firm can (according to the FSCS) provide “advice”.

  8. Deliberately ignoring the rhetoric, I’ll bite.

    I’d say they’re all advice except for:
    – I’ve bought this myself, and
    – In a recent survey of people who have a portfolio similar to yours, they also bought this.

    I think they’re capable of being information as they’re not based on the client’s characteristics.

    “… see which you think is best …” is advice because it implicitly presents all the options as good for the client.

    • So, in a discussion with an adviser, for which you are paying a fee:
      “I’m, looking for an investment that will help me build me a pension. I want to make sure it is low risk, however.”
      “Well, I’ve bought this myself…”

      Doesn’t that sound like advice now (OK I paraphrase the discussion)? The fact is, what is and is not advice depends in part on the context in which it is given.

  9. Sorry, that last post is in reply to George Kaplan but I clicked in the wrong place…

  10. With advice surely it is someone has said not only is it a good investment (generically) but that it is a good investment for you to make now in your current financial position.

  11. “The boundary of where financial advice starts and information begins is “almost impossible” to define, the FCA has said.”

    Shouldn’t that read “information ends”?

  12. Advice is actually very easy to define.

    Is a specific recommendation made? If it is, then it’s advice, if it’s not, then it’s not advice.

    Defining the difference between information and guidance couple be more problematic, but advice is easy.

    Which in very simple terms means that the FCA want to be able to hold people responsible for the decisions of others, regardless of whether they are responsible or not.

    But this is what you get when people keep voting for more nanny state and believe that someone other than them is responsible for their actions.

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