The changing definition of Financial Advice – is it likely to help your business?
In August 2015, the government launched the Financial Advice Market Review (FAMR) to explore how consumers could access help with their finances more easily.
FAMR examined the regulatory framework governing the provision of financial advice (and guidance) and its effectiveness in ensuring that consumers have access to the help they need in order to make effective decisions about their finances. It acknowledges that consumers face complex financial choices and often seek help. Whilst some consumers need guidance in making their own financial decisions, others would benefit from limited advice on a particular need, such as how to invest their spare income as opposed to those who need full advice covering all of their financial needs.
FAMR suggested that consumers with relatively straightforward financial needs or relatively small amounts to invest would benefit from high quality and detailed guidance services. However, FAMR found that firms were reluctant to offer this potentially less expensive guidance to consumers.
A key reason for this reluctance was uncertainty about what constitutes regulated advice. Firms, consumer groups and employers all highlighted a lack of clarity about the point at which general forms of consumer support become regulated advice. Stakeholders highlighted two areas of ongoing uncertainty:
- the boundary between providing helpful guidance and unintentionally straying into an implicit personal recommendation
- managing the risks of the different regulatory requirements that apply depending on whether a firm is providing factual information on particular investments, or moving beyond that
As a result of this uncertainty, FAMR found that firms are limiting the amount of guidance they are giving consumers for fear of inadvertently straying into the provision of regulated advice without meeting the higher regulatory requirements. There was a strong consensus during FAMR that a clearer boundary between regulated advice and guidance would allow firms to better help consumers. A range of respondents, including the FAMR Expert Advisory Panel, suggested that the uncertainty around the boundary stems from an unclear definition of financial advice.
As a result, it has been decided that the FCA will produce new guidance to support firms offering services that help consumers to make their own investment decisions without a personal recommendation. This will include a series of illustrative case studies highlighting the main considerations firms need to take into account when developing such services and dealing with specific areas of uncertainty identified during the Review.