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.”
The consultation closes on 15 November.