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Treasury challenged over new advice definition


Firms have raised concerns the Treasury’s proposed definition of advice does not address the lack of clarity between advice and guidance and risks taking the sector back to pre-RDR days of product-centric advice.

The consultation was recommended in the Financial Advice Market Review and proposes amending the definition of advice so that consumers only receive regulated advice when they are offered a personal recommendation for a specific product.

The consultation explains there are two ways of defining advice. In the UK, regulated advice is defined as “advising on investments”, as included in the regulated activities order. Meanwhile, the definition in Mifid is based on a firm giving a customer a personal recommendation.

The consultation says: “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.”

Alexander House Financial Services chief operating officer Jane Hodges supports the consultation as a way to improve consumer outcomes but she is worried about advice being too narrowly defined with the focus on products.

Hodges says: “Before the RDR we were all paid commission and everything we did was very product-orientated. Post-RDR, that was supposed to be broken and we were going to be very advice-oriented and paid for the advice we give.

“Advice might be to change your will, make a gift, or do your taxes in a different way. It could be a range of things that have a financial impact on a customer and therefore we are liable for it as advisers. I get the impression it is going back to being only important if you sell a product at the end of it.”

Barnett Waddingham senior consultant Malcolm McLean has always considered advice a recommendation related to a particular product or provider.

He says: “My concern has been the area of confusion that seems to surround many people as to what is advice and what is guidance. There is basic information which a provider must provide. Guidance is applying discretion to that situation and telling the person what they could do, and advice is telling people what they should do. That would be a recommendation directed at a particular product or provider or both.”

Apfa director general Chris Hannant says: “At an instinctive level, it seems right the definition is drawn around what most people think and understand it to be, which is a recommendation that they do something.

“People have been reluctant to get involved in guidance or streamlined advice, and it is the personal recommendation boundary that gives the uncertainty. Since this does not alter the personal recommendation boundary it does nothing to [reverse] the uncertainty about what is on one side and what is on the other.”

A Treasury spokeswoman says: “The Treasury launched this consultation to gather views on the proposals from a range of stakeholders. We value engagement and will carefully consider all the responses that we receive.”

The consultation closes on 15 November.



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. I don’t believe this should be product related any longer as defeats the object of RDR trying to raise the bar. But surely being able to describe a number of options and their pros and cons- leaving the customer to decide which is right for them is guidance and an advisor saying I think this suits you best? I would do this if I were you? I don’t think you should do that? I recommend you do this? – is a line that is easy enough to understand? Supported by transparent and clear processes that prevents advisor influence and or customer confusion? This would allow consumers of varying levels of knowledge, sophistication and/if budget to choose the service they want to pay for and for advisors to be comfortable in where to draw the line? Rules aligned to just products seems to only do half the job and harps back to product sale days rather than financial advice? But huge believer in making clear distinction so consumers can access differing levels if service to suit needs, knowledge and budget.

  2. So if we follow Malcolm’s definition then telling someone that no action was needed or preparing a detailed financial plan would not be advice either?
    the dictionary definition of advice “guidance or recommendations concerning prudent future action, typically given by someone regarded as knowledgeable or authoritative.” So someone being told not to transfer is advice especially as FOS would see it that way. However if HMT has its way then no need to pay any fees or PII on turnover for pure planning or where no product/investment is arranged? You couldn’t make it up the comment from APFA is even worse telling people what not to do is seen as advice by the recipient try asking some consumers many how have used execution only firms would still list them as their advisers.
    We urgently need a new lexicon and that will be in my submission; we need to use language the public understand and this latest move does not deliver that.

  3. Most advisers and consumers are probably repeatedly confused and dismayed by the disconnect between our (real) world and the confusing, over complicated land of legalese that is unfortunately ruling over it.
    The real problem is not that they cant successfully define “advice” (for the purposes of their world, not ours) but that the system they have devised and put in place REQUIRES such a definition to be successfully achieved, even when it doesn’t stand up in real life.
    Professional advice is actually simple to define – its what you get from someone who’s capable of giving it when you pay them for it. But that probably wont help them within the regulatory conundrum they’ve created.
    As was said above, at least the RDR recognised what a lot of advisers had already started doing, which was to make their advice the thing they sold, rather than a product.
    So isn’t it a lot simpler all round (and will help consumers) to define advice as being something you specifically pay for, whether there’s a product involved or not, as long as the firm/person giving the advice doesn’t earn anything else from the solution other than that advice fee.
    So that if you pay for it, whatever it says you should do, or not do, its advice, regulated advice.
    And if the person/firm you pay will earn anything from the solution they propose, then that would be product selling as opposed to being advice. Simples.
    To call a providers guided online sale of a product “advice” would just be utterly misleading.

  4. Perhaps the key supplement to “a personal recommendation” needs to be the word “written”, so that when the disgruntled client goes to the FOS and claims that Adviser X “recommended that I do such and such”, the first response from the case handler/adjudicator shall be “Prove it”.

    • That wouldn’t work for me or my clients as I record all my meetings. I believe in “My word is my bond” .People act on what I/we say and how I/we say it NOT what was written down after the event.

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