The Treasury has launched its consultation on amending the definition of advice so that consumers only receive regulated advice when they are offered a personal recommendation for a specific product.
In the consultation paper the Treasury says there are currently two ways of defining advice.
The UK defines regulated advice as “advising on investments”, as set out in the regulated activities order. This definition is broader and less specific than the definition used in Mifid, which is based on a firm giving a customer a personal recommendation.
The definition change was recommended in the Financial Advice Market Review and announced in this year’s Budget.
The consultation says: “FAMR found the Mifid definition is clearer for firms and consumers and is also much easier for firms to build into their compliance processes.
“The consultation proposes to amend the wording in article 53 of the regulated activities order to reflect the text set out in Mifid, so that consumers only receive ‘regulated advice’ when they are offered a personal recommendation for a specific product.”
The consultation sets out the cost of full regulated advice for consumers who have straightforward financial needs might outweigh the benefits, or it might be uneconomic for firms to provide those customers with advice.
It says: “Currently, firms are reluctant to offer guidance services to these consumers, increasing the risk of them making poor investment decisions on their own. A key reason for this reluctance is uncertainty around what constitutes regulated advice and what does not.”
The consultation also considers the costs and benefits of the proposal, saying firms that currently carry out activities covered by both definitions of advice and firms looking to enter the market to provide guidance services will be impacted.
The consultation closes on 15 November.
Any change would be made through an order under the Financial Services and Markets Act 2000. It would also require secondary legislation.