View more on these topics

FCA sets out plans to help firms with advice vs guidance

Regulator sets out the kind of questions firms need to ask themselves when providing guidance services

The FCA has outlined a series of tests and case studies firms can use where they want to offer guidance services to consumers without straying into advice.

The regulator has published a consultation paper on the implementation of the Financial Advice Market Review, following industry feedback calling for greater regulatory clarity between advice and guidance.

Earlier this year, the Treasury said it would change the definition of regulated advice on retail investments to be based on providing a personal recommendation. This will come into effect from 3 January.

In April, the FCA set out an initial guidance consultation on FAMR, to which it received a total of 17 industry responses.

Firms asked for clarity on a number of issues, including whether the use of best buy lists amounted to a product recommendation, and personalising client communications without giving advice, such as the need to boost pension contributions or use an Isa allowance.

The regulator has reiterated earlier guidance, which is consistent with European rules, which sets out a series tests to determine whether a service amounts to giving regulated advice, including:

– Does the service being offered constitute a recommendation? For example, firms need to consider the difference between information and recommendation, and whether help a customer to filter data amounts to a recommendation

– Is the recommendation presented as suitable or based on individual circumstances? For example, firms need to consider the impact of disclaimers and what might appear to be a suitable recommendation

– Is the recommendation given other than through distributions channels or the public? For example, firms need to assess recommendations given online, where recommendations are offered to multiple customers at once, and the effect of sending out investment research

The FCA says “context is vital” in deciding whether these tests are met.

It adds: “We believe where an adviser says ‘people like you buy this product’ or ‘this is what I would do if I were you’ it is likely to be viewed as a recommendation of what is suitable for the customer or based on a consideration of their circumstances and is therefore a personal recommendation.

“However, we have sought to provide new guidance which we hope will support firms in navigating this issue in a way that will help consumers.”

Recommended

16

What the FCA needs to understand about advice vs guidance

The recent statement by FCA chairman John Griffith-Jones that the divide between guidance and advice has become hard to define exposes a worrying lack of understanding of the value of regulated advice. Regulated advice can be easily distinguished from guidance. The six main features that set them apart are: The scope of advice versus guidance […]

1

Govt urged to relent on its attack on buy-to-let

Former work and pensions secretary Iain Duncan Smith has called on the Government to stop “punishing” landlords and rethink its stamp duty and mortgage interest relief reforms. Since April, landlords have not been able to claim tax relief on mortgage interest payments, and by 2020 they will only be able to claim tax credit at […]

Abe and Modi

India: Modi, reform and the oil price fall

Nearly 12 months since sweeping to power, prime minister Narendra Modi has overseen a significant turnaround in India, which is now on track to become one of the most pro-growth, pro-investment economies in Asia. While the market has rallied 48 per cent over the last year in response to Modi’s reform agenda, what is the potential for further progress?

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I have been under the impression that guidance without a specific recommendation isn’t regulated. So why is the regulator muddying the water?

  2. …… – Does the service being offered constitute a recommendation? For example, firms need to consider the difference between information and recommendation, and whether help a customer to filter data amounts to a recommendation….” What a load of codswallop. It does not matter a jot what the firm’s considered view is. It seems that (as usual) it boils down to what the FCA’s considered view is.

    It adds: “We believe where an adviser says ‘people like you buy this product’ or ‘this is what I would do if I were you’ it is likely to be viewed as a recommendation of what is suitable for the customer or based on a consideration of their circumstances and is therefore a personal recommendation.

    So if a 35 year old self employed guy comes to me for a meeting and our discussions uncover he is married with kids, mortgaged, has no protection and no pension plans in place.

    Following the meeting, I conclude the business in hand by producing an action plan and send it to him. This simply tells him why he should put in place family and mortgage protection and why he needs to pay into a pension.

    Lets say he goes off (with no input from me) and buys family protection and sets up a pension online with a lump sum. He finds out that he bought reviewable policy that doubles in price after 5 years and his pension goes into funds which are way too risky and loses 60% by the end of 5 years.

    Is the FCA saying that these are personal recommendations and I am liable?

    If this is the case then this “guidance versus advice” debate is dead in the water before it gets started.

Leave a comment