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The FCA rules on when information becomes advice

Firms offering clients ‘best buy’ product lists on a non-advised basis must tread carefully to ensure they are complying with the FCA’s advised and non-advised rules, say compliance experts.

The regulator is currently carrying out a thematic review on non-advised and simplified advice investment sales.

As part of the review, it is asking firms to supply their rationale for the product range included in the service, and the process for compiling any buy lists.

The FCA’s handbook rules on the difference between advice and information state: “Information may take on the nature of advice if the circumstances in which it is provided give it the force of a recommendation”.

One example given by the FCA of information straying into advice is where information is provided on a “selected, rather than balanced, basis” and would influence the decision of the recipient.

Compliance experts say the rule could be applied to best buy product lists and that firms must ensure they are compliant in both the way the list is created and the way it is communicated to clients.

Independent regulatory consultant Richard Hobbs says: “This is a grey area but the key word here is bias.

“What was the intention of the firm when they set up the list and was there any commercial bias? The regulator will be looking at whether the arrangement provides clients with a genuine choice or is designed to direct them towards a particular commercial outcome.”

The Phil Billingham Partnership director Phil Billingham says firms must couch their language very carefully to ensure customers do not mistakenly believe they are receiving advice.

He says: “Historically regulators have perceived services as advice if that is what the consumer believes they have received.

“Firms need to look at this from a consumer’s perspective. If a firm asks for a customer’s details and says we will give you a list of the best funds for you, or the best funds on the market, then it is easy to see how a consumer could believe they have received advice.”

When asked for the FCA’s position on best buy lists and advice, a spokeswoman referred to guidance from the European Securities and Markets Authority published in 2010 which she says is consistent with what the regulator practices.

The guidance states: “Publishing a list of ‘best products’ or ‘funds of the month’ on a public page of a website or in a newspaper would not, in itself, normally be regarded as investment advice.

“However, if a list of best products was provided to one or more individual clients, rather than distributed through a distribution channel or to the public, it is possible that such a communication could amount to investment advice.”


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There are 3 comments at the moment, we would love to hear your opinion too.

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  3. “guidance from the European Securities and Markets Authority”. Hmmm. If FCA policy is influenced so much by what Europe says, then why does it ignore the requirement under MiFiD that the annual CPD requirement on advisers is only 15 hours? It seems that the FCA’s adherence to what comes out of Europe is selective to suit its own agenda, with the bits on which it isn’t in quite such accord are conveniently ignored.

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