What is the difference between advice and guidance? I have been pondering the subject over the past few days in the wake of a thoughtful article in Money Marketing by my fellow columnist Paul Lewis.
Paul writes about the impending demise of the Money Advice Service, for which he made a number of videos about annuities. He believes they were good – and he is right: they are very good indeed.
More importantly, Paul believes the MAS scripts, which explain what to look for when choosing an annuity and refer prospective annuitants to an annuities comparison service, are a form of advice – as opposed to guidance.
Paul’s view is advice refers to a process where he, along with qualified advisers, is able to recommend certain courses of action to consumers. As long as he does not stray into the minefield of recommending specific products – although he might express a view as to whether some types of investment are better than others – then what he does is to give advice, as opposed to guidance.
Advice, at the end of the day, should be seen as a basic term with an obvious meaning. If I tell someone how to get from A to B on a map, I am giving them advice. As it happens, strictly speaking, I am giving them directions, but you get my drift.
For Paul, the difference between advice and guidance lies not in the final stage of the process, where the adviser actually recommends a product, but well before that, where a generic course of action may be strongly recommended.
So, for example, guidance is where I simply mention the fact enhanced annuities are available to people in poor health. Advice is where I tell a smoker to actively seek out an enhanced annuity.
In Paul’s opinion, therefore, it is wrong for advisers to try to monopolise the word advice for themselves in relation to the work they do. Everyone who gives advice, himself included, should be able to say they offer advice.
Put that way, it is actually a pretty reasonable argument. The problem is to get there, Paul does two things – he exaggerates distinctions between advice and guidance and also skirts past some other issues that need to be addressed.
Let’s go back to the enhanced annuities example I mentioned earlier. The reality is no serious financial journalist would ever just make a wishy-washy reference to how they might be available in certain circumstances.
I, and most writers, would, at the very, least strongly signpost the fact, giving specific examples and urging people to find out whether they might benefit. So the difference between the two is nowhere near as wide as he makes it out to be.
Even more importantly, Paul assumes this argument really matters. Actually, I do not care whether that is guidance or advice. And neither would any adviser. The vast majority of those I talk to are more than comfortable with someone like myself recommending a certain generic course of action – although they will take issue strongly if they think it is wrong.
The issue for advisers is not the category such comments come under but whether the person giving so-called advice/guidance then attempts to initiate the next stage in the process – that of recommending a product and then offering to process that transaction in return for payment to themselves.
In other words, what rankles with the adviser community is not so much adviceis being given by someone like me (or Paul). It is more to do with the potential of someone taking on the role of adviser without having the necessary qualifications or, more importantly, being regulated to do so – with all the knock-on consequences of not being answerable to consumers via the Financial Ombudsman Service and/or the Financial Services Compensation Scheme.
This last point is crucial: I remember – as does Paul – how tens of thousands of unqualified and out-of-control salesmen rampaged up and down nurses’ halls of residence in the late 1980s and early 1990s, persuading them to leave their final salary National Health Service pension scheme.
The regulatory structure we have today is a consequence of what happened then. And that is why it is so important for anyone who claims to be an adviser to go through all the hoops necessary to prevent that kind of misselling and, yes, misadvice from ever happening again.
The distinction, therefore, is not about advice or guidance. As I have said before, I do not get too excited one way or the other whether the MAS gives one or the other. I did feel the claim it gave “free, unbiased, and independent advice” was a blatant attempt to capitalise on the public’s uncertain and occasionally negative view of advisers. But it was never the key issue for me.
As for some of its website content being good, well, of course it is. So it should be, given the huge amounts of money the MAS had to spend on it.
The key dividing line, however, is about adviser and non-adviser. If Paul wants to say he gives advice, that is OK with me. The minute he stops calling himself a journalist and claims to be an adviser, that is when the problems start.
Nic Cicutti can be contacted at firstname.lastname@example.org