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Nic Cicutti: We shouldn’t preach to the FCA about advice

Many years ago, I attended a public debate in London between Tony Benn and a leading representative of a socialist sect. There were hundreds of supporters from the 57-plus varieties of left-wing thought in the audience.

The one thing that struck me forcefully as I made my way out – vowing never to return – was the way they seemed congenitally incapable of hearing what each other was saying, preferring instead to debate entirely imaginary versions of the other side’s argument. If you cannot practice active listening, I thought, what chance is there of persuading the wider public of your aims?

I was left with a similar feeling last week, after reading a column by LEBC director of public policy Kay Ingram on the difference between advice and guidance.

Ingram was responding to a speech by FCA chairman John Griffith-Jones to an audience in Cambridge last month, in which he attempted to set out the five key building blocks of financial conduct regulation. Griffith- Jones’ speech can be found on the FCA website. For me, one of its intriguing aspects is the admission that it is virtually impossible to enforce zero tolerance in relation to conduct regulation.

Early intervention

The FCA chairman identified two phases in the regulation of the industry: ex-ante, or before the event, and ex-post, after the event. Griffith-Jones said: “Ex-ante we seek to anticipate the more material things that are more likely to go wrong, and to pass rules, conduct supervision, or occasionally to ban practices [to] reduce the likelihood of such events crystallising with detriment.

“Sometimes we can foresee issues before they surface, but more frequently it is the speed of response to early signals that is key to containing the scale of the damage that might otherwise occur. Sometimes, regrettably, it has to be a case of learning with hindsight, but this is still better than letting history repeat itself.”

Griffith-Jones seemed to imply it may be necessary to identify a level of “acceptable detriment” that consumers must take on the chin because attempts to prevent all financial harm is simply impossible.

There are those of us who have long argued that different watchdogs over many decades have been too slow to act – Arch cru, Keydata, precipice bonds, self-certified mortgages and Equitable Life all spring to mind. It leads to a huge loss of consumer confidence and increased compensation and regulatory costs for advisers, so against that backdrop the FCA chairman’s comments are startling.

Intriguingly, having identified the Financial Ombudsman Service and the Financial Services Compensation Scheme as lifebelts that help maintain a modicum of consumer confidence in the sector, Griffith-Jones points out the £25bn-plus cost of settling the banks’ misselling of payment protection insurance suggests far earlier intervention would ultimately have been beneficial to the industry. I imagine most banks would belatedly concur with this sentiment.

What the regulator knows about advice

It was in the context of setting out a context for the FCA’s future mission statement that Griffith-Jones then briefly ventured into the realm of advice versus guidance, pointing out what he calls “the remorseless march of technology” has made the line between them harder
to distinguish.

He said: “Rules that were designed for the paperwork era do not work necessarily for the online one. The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice.”

All this makes the basis for an interesting argument about both the limits and effectiveness of regulatory intervention, one in which advisers have a critical interest in taking part.

The problem for me is the response by Ingram to Griffith-Jones’s argument. In her best “eat up your greens” manner, she proceeds to lecture the FCA chairman on the difference between guidance and advice.

My best guess is if you set the FCA chairman a quick test, he would probably be able to rattle off much the same points as Ingram. Yes, guidance providers give generic, not specific information. Yes, they sometimes (not always) take responsibility for the implementation of that advice. Yes, advisers must be qualified. But what qualifications do you expect a computer software programme to have? And if it were to identify a specific product based on a consumer’s input of their financial details, is that guidance or advice?

The real issue is not that Griffith-Jones and the FCA’s 3,000-odd staff do not get the formal distinction between the two concepts but that, as he says, technology is blurring that distinction and regulators must find ways of intervening in the new world we all find ourselves in.

Ingram’s comments are not a contribution to that discussion. They involve a didactic approach which makes it harder for advisers to engage successfully with the debate over the future of business conduct regulation. Time for some active listening, methinks.

Nic Cicutti can be contacted at



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There are 15 comments at the moment, we would love to hear your opinion too.

  1. My big issue with Ms Ingrams’ piece was not so much “advice” vs “guidance” as her conflation of “advice” with “arranging/bringing about deals in investments”, a totally separate regulated activity…

  2. This could all be made simple, but unlikely to happen. If we assume that any ROBO system provides guidance, based on a fact it is not personalised sufficiently and the consumer makes the decision to transact. That advise is both personal and interagtive with a living individual, having full information, debate, research and then recommendation and transaction. To me this seems fair, is clear, easy to understand and gives a clear line.

    • Martin

      It struck me that you nailed it with your first six words

      “This could all be made simple”

      It won’t be though because financial services regulation is overbearing, over expensive over complex and over us!

      And too much of a cash cow for too many people

      It will never be made simple

      • “And too much of a cash cow…” Oh how very true. It would be interesting to learn how much the big for accountancy practices (EY, KPMG, PWC & Deloitte) have earned out of regulation over the past 5 years. I’ll be the result will stun us all. Then of course there is the revolving door between them and the Regulator.

    • I was going to agree with you until I saw Nick Wardle’s post. Computer based could be advice in his definition, just it relies on the client inputting true and accurate facts otherwise you’ll get rubbish in and rubbish out.

  3. Maybe the industry is coming at this from the wrong angle. We’re all thinking about advice v guidance in the context of the result, specific product or generic options. Why don’t we start thinking about what is required at the front end. The definition of advice could be tied to how much information the client provides. For example if a client only ever provides their personal details and proposed investment amount then advice can never be provided only guidance.

    Just a thought.

    • Again, the FCA requirements are to KYC and document the info the client gives you and the client is unwilling to give you and then base your advice on that. The difficulty then is the blame game of he said, she said which occurs when someone is not a fly on the wall of the meeting. hence why we record meetings and defended our only complaint which nearly went to the FOS via the recordings rather than the suitability report which would have proven as much of a defence as a chocolate fireguard!

      • That is a great result and highlights that clients can be very selective about what they remember of recommendations.

        You mention KYC, picking up from my original comment, maybe the advice threshold should be a certain level of KYC. If a client refuses to provide information then maybe the FCA should base their definition of advice on this basis. How can you provide advice without sufficient info? I realise this will happen in practice but the FCA seems unable to enforce the simple concept that advice means responsibility for the outcome, guidance doesn’t.

  4. Perhaps everyone would do well to start listening to clients in the first instance. What do they want and expect? What is their perception of what they get and how does that measure up against reality? How much information do they really want or are they capable of understanding? Is what they get useful at the point they get it or only when it comes to approaching the FOS?

    The list goes on but the point is that most regulatory thinking doesn’t start with what the client wants or needs but with what the regulator thinks the client wants and needs, the difference can be quite large. You don’t have to sit down with many clients as I have to ‘get’ that the vast majority are buying trust from their adviser and will go along with whatever they suggest regardless of what is on any paperwork they are given. If the regulator(s) just started from that practical reality then it would be a huge leap forward.

    • 100% in agreement with you there.
      I once had a client who’d just sold her business for a tidy sum say to me when she was writing the cheque for the proceeds of her life’s work, “who do I write the cheque out to Phi? You I assume?” I explained to her that whilst I KNOW I am trustworthy now, there are plenty of people who’ve had knocks on the head and their personalities have changed (along with their honesty), so NEVER trust anyone to that extent PLEASE.

  5. I know this is cynical, but I strongly believe that the real issue around all of this is who can be blamed should something in the future prove to have been retrospectively not perfect and therefore require millions or even billions of pounds to be paid out of the fee’s charged to clients who are not claiming at the time.

    • Agreed, which is why we record all client meetings as I would rather be hung drawn and quartered for trying to do the right thing for a client, but making a genuine mistake than falsely accused of dishonesty and I suspect many of my peers feel he same.

    • Quite right Steve but guidance providers recognise that the public perceive advice to be the default so sail as close to the wind as possible without taking any of the responsibility.

    • Apologies, I called you Steve but your username is Steven. Might not be real but I will stick with convention.

  6. Am I stupid here? Has it not been decided that regulated advice is to be defined as “that process which leads to a personal recommendation(s) being made”? We already have an FCA definition of a recommendation therefore by definition if it is not a personal recommendation(s) it is therefore not advice? What can the regulator not just accept this a very easy way to draw the distinction?

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