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MPs attack FCA over Budget guidance amid risk of ‘regulatory nightmare’

MPs have attacked the FCA on confusion over the definition of guidance in the wake of the Budget, warning there is a “regulatory nightmare” on the horizon.

Chancellor George Osborne stunned the pensions industry in the Budget last month when he announced people would be able to take their entire pension pot as cash from age 55 from next April.

Alongside the reforms, Osborne said members of defined contribution schemes “will be offered free, impartial, face-to-face advice” at retirement from April 2015.

A consultation document published alongside the Budget confirms the service will provide guidance, not advice.

At a Treasury select committee hearing on the Budget today, FCA director of policy risk and research Chris Woolard was quizzed on the potential confusion for consumers over the difference between guidance and advice.

TSC member and Labour MP for Wolverhampton South East Pat McFadden said: “Where does this leave the consumer in terms of protection when things go wrong if they are being offered guidance and not advice? You do understand that from a consumer’s point of view the difference between the two is pretty confusing, especially when it affects their rights.”

Woolard said: “One of the challenges for us is to make sure it is absolutely crystal clear for people when they are having that guidance conversation, that they understand that it is guidance and they understand what their rights are.”

TSC member and Liberal Democrat MP for Caithness, Sutherland and Easter Ross John Thurso said it is clear from the FCA’s evidence there is “a potential regulatory nightmare between advice with a capital ‘a’ and a small ‘a’, and guidance with a capital ‘g’ and a small ‘g’”.

He said: “There is a risk of the consumer ending up utterly bemused by it all. The FCA will be central to putting that into something that is comprehensible both to consumers and providers. Have you considered the scale of that challenge and how you will meet it?”

Woolard said while full advice is well understood by firms and consumers, as is execution-only, the space in the middle “is often quite murky”.

He said: “We are currently carrying out a piece of work to try and deal with that across the board, and this work around annuities brings it very sharply into focus.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Well, if there were concerns and/or confusion over the differences between regulated and unregulated advice and guidance then they will be ten times bigger at the end of this. No amount of disclosure or explanation will help with what is a fundamentally complex ‘grey area’.

    What’s so replete with irony is that the resultant mess will have been officially created and sanctioned by Government and the Regulator.

    Clear, fair and not misleading anyone…

  2. I would have thought this is very clear.
    The Government states the ‘guidance’ will be free, so they will not mind picking up the tab for a few million leaflets, one sheet of course since Jo public could not handle more. This will be the ‘free guidance’.
    Everything else is advice and will cost – more because the risk has increased.

  3. Do we need to spell out what is meant by “advice”? and tighten up the definition under the FSMA 2000 and 2012? the answer to that is unequivocally yes.

    I notice that there are certain websites who are very keen for the word “guidance” to not mean full face to face advice.

    My understanding of the present rule book is if a face to face consultation is carried out, then this does constitute regulatory advice even if a written report is not provided.

    The question should be, who pays for the advice? is this going to be a levy on providers? paid to advisers? or is there going to be a fund from tax payers providing fees to advisers like Legal Aid?

    What is clear is that it should not be conducted by unregulated and unqualified advisers. I am very surprised at the attitude of Chris Hannant of the APFA who seems to be hinting that because there is not enough capacity we should be opening the gates to unregulated advisers. This guy is meant to be representing professional advisers interests, he certainly isn’t representing my interests.

  4. The FSA were warned about the confusion of renaming the former ” Money Made Clear” The “Money Advice Service” and many adviser complained about both the use of the word “advice” and the initial adverts which came out on TV.

    I don’t object to a “Money Guidance Service” nor the very small levy this results in for my firm. I DID object to the obscene salaries and bonuses being paid to it’s senior staff originally and until it is renamed, i will continue to refer to this service as the MESS (cos it is) and not the MAS…… cos it certainly isn’t

  5. OK, acronyms rule!
    Do it my way because it is KISS!

  6. Trying to keep my paranoia under control but this has all the potential hallmarks of another pensions unlocking review if it’s not sorted very carefully.

    I’m sure the claims chasers will have a field day analysing the fine print some way down the road, when all those clients who splashed the cash are then living in penury because X wasn’t made clear……

  7. Julian Stevens 2nd April 2014 at 9:16 am

    The only solution for advisers is to eschew the provision of “guidance” and stick religiously to chargeable advice. Anything else is like walking on quicksand.

  8. goodness gracious 2nd April 2014 at 9:41 am

    If the treasury consultation paper demands that guidance for retirees consists of a number of elements, it must be face to face, relevant to the individuals circumstances, consistent and recordable, then most of the prior comments look fairly weak.
    The chancellors wishes can only be provided by three different methods in my opinion. Firstly there could be a small army of guides, visiting retirees at home, using a pre-approved, probably electronic, fact finds and giving options to clients generically, produce a limited report that can be sent later by post. Secondly he could provide vouchers for IFAs to provide a similar service, but with little training required, but the vouchers would need to be for enough money to make it worthwhile for IFAs to do the job.
    Lastly he could look at the CAB to provide this service via payment from the industry to the CAB, delivered via the volunteers.
    In what way could you possibly think that there is a liability to the provider. If you do not recommend a product, but just a generic way forward, where is the liability?
    If you inform the client that drawing down over a term is the best way forward to assist the client towards his goals and money runs out, so what? The test for reckless and therefore unsafe guidance is if a panel of similarly trained persons feel it is totally wrong, then it is. No advice or guidance can possibly predict the future where both the plan and circumstances can alter on a daily basis.
    Mind you, this is not to say the claims chasers and lawyers will not seek to make money out of the feckless and less fortunate who do not keep to the plan.

  9. Worried about a potential regulatory nightmare, what about the one that already exists?

    A complaints scheme that decides which complaints it wants to handle (rejecting the vast majority) and the only escalation to a commissioner appointed by the autthority and given no power whatsoever over it!

    In any other organisation this would be seen as the sham that it is and a million miles from best practice corporate governance.

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