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Nic Cicutti: Why Paul Lewis is wrong on advice vs guidance

Nic Cicutti

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 nic@inspiredmoney.co.uk

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Neil Liversidge 14th April 2016 at 1:17 pm

    Agreed Nic. And given his recent ‘advice’ that people should be largely in cash I think it’s better for all concerned if Paul sticks to journalism.

  2. Richard Clinton Green 14th April 2016 at 1:17 pm

    A very good article and very relevant considering the number of people that listen and quote Paul Lewis who seems to imply that all advisers have a hidden agenda and forgets that we build our Client Banks by helping people and getting the right results for them.

  3. The trouble with terms and descriptions is that they, unlike Tribbles, look different from different places. Within an industry, any industry, there will be a general understanding about the meaning of a term. The same word may mean something very different in another industry, or to the general public. Think about consultant – in hospitals it doesn’t tend to mean someone trying to sell you something. It’s also the case that formal terms get shortened within any industry because of that common understanding.

    Advice is a case in point. ‘Regulated advice’ becomes advice, IFAs become advisers. I’ve worked in ‘the advice sector’ for many years. To me that means CABx, Law Centres, Welfare Rights Units, Financial Inclusion units etc. The people who work there are called advisers (or advisors) but they’re not talking about financial products.

    Can I suggest that people here take a wider sense of meanings and don’t think purely in industry terms? Then it might be possible to have a genuine discussion and a common understanding about advice, information and guidance.

  4. Definition of an adviser is someone who gives advice. Paul can be a journalist and an adviser.

    The real issue is about what clients understand they are getting. Are they clear what the consequences of acting on Paul’s advice are compared to a regulated adviser?

    It’s about the client stupid…

  5. “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.”

    No, you are wrong. In the first case, you are giving them guidance as to how to get there. Advice would be answering the question “should I go from A to B?”

  6. The sad fact is that faced with an Ombudsman (or FCA process enquiry I suppose) claim because ‘something’ has gone ‘wrong’ for whatever reason, it is not what the adviser does or does not do but the Ombudsman’s judgement at the end of the day and that is final, without recourse. If he says it was, that’s the end of the story.

    We should love to give more ‘guidance’ but where that ends-up with someone ‘buying a product’ for want of a rather more attractive concept and even from ‘anywhere’ without necessarily any payment to the adviser in theory, the Ombudsman could say that it was advice and that it failed to reflect the investor’s risk perspective, capacity for loss and well, there’s no comprehensive fact find is there, as no advice was given. Yes but it was only a £2,000 top-up to an existing investment your honour?

    So what that the investor signed a declaration of ‘execution only’ – you, the adviser, guided him towards particular products and put various opportunities in front of him. He didn’t know that wasn’t advice did he – regardless of what the report (what’s a ‘report’) said.

    And then there are unqualified, unregulated individuals giving financial advice like Mr Paul Lewis on the radio of all things – so, no recourse for this guidance (I mean advice?) and anyway, isn’t that against the very basis of the original regulations? Otherwise these individuals are in the same camp as boiler rooms it seems. Indeed, int he really good ol’ days, even journalists had to be registered with the regulator (let alone authors of pamphlets and videos on products like annuities!) I seem to recall and even that has passed away these days, let alone the thought that some might want to secure credibility by taking the exams at least!

  7. In my book ‘information’ is where I simply mention the fact enhanced annuities are available to people in poor health. ‘Guidance’ is where I tell a smoker to actively seek out an enhanced annuity, ‘advice’ is telling a non-smoker to take up smoking

  8. I must be a bit slow because I found the dialectic rather jumbled.

    Where I think Nic is absolutely correct is when he says: “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.”

    And: “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 mis-selling and, yes, mis-advice from ever happening again.”

    To me therefore these statements make it perfectly plain that the term ‘advice’ belongs to those who are Regulated, qualified and answerable for that advice – for life. Therefore the word SHOULD be the monopoly of advisers and all those not conforming to the definition should definitely be barred from using the term. (Or have I missed something here?)

  9. At the end of the day, if I take his advice and it goes wrong, will he take responsibility.

    I think not.

  10. It is perhaps worth considering that the only reason why the current debate (and, in the public mind, confusion) about the differences between advice and guidance has come about is the creation of the MAS. On specific money matters, it cannot provide the very thing that its name strongly implies. How stupid is that?

    To the best of my knowledge, nobody ever visits the (increasingly cash-starved) CAB expecting it to dispense advice on how best to deploy their accumulated pension fund/s. At best, the CAB provides a broad, non-specific outline of the options available, quite possibly pointing out that plumping for the quickest and simplest option (e.g. ticking the box to accept one of the holding provider’s own annuities) is highly unlikely to be the best thing to do and concluding that the best source of personalised advice is a qualified and regulated adviser. That’s guidance. All that the MAS has achieved is to muddy the waters by suggesting to people that they can obtain free of charge something that, in reality, they plainly cannot.

  11. We can argue the difference between ‘advice’ and ‘guidance’ in an industry context or a wider public context until the cows come home but the issue is what the client gets.

    I’m not talking about the client getting a product or pointed in the direction of where a product might be found, I’m talking about the level of protection and potential redress clients get. If you are a regulated adviser you can’t provide advice or even guidance to a client without being on the hook for what that client decides to do for the rest of eternity.

    This is what angers advisers. Why should we be held responsible for everything we say to clients and pay a small fortune to the regulator in order to give advice just for Paul Lewis to tell everyone he does the same thing?

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