Call the computer police as the FCA’s latest guidance consultation paper revealed what you can and cannot say online.
On Friday (11 July), the City watchdog published guidance to help clarify the different types of retail investment sales models, the boundaries between them and the associated regulatory requirements.
Here are five things I learned from the FCA’s latest guidance consultation paper:
Post-RDR consumers feel as qualified as you are
Even when the RDR was in its infancy concerns were expressed about the impact it would have on the availability and accessibility of personal recommendations to the public.
In the FCA’s guidance consultation paper, the watchdog revealed it has conducted a large scale piece of quantitative customer research, looking at customers’ interactions with the retail investment market before and after the introduction of the RDR.
The research found there had been a small shift from sales channels that involved the giving of a personal recommendation to those that did not but a greater move from channels not involving a personal recommendation to those that did.
This suggests that the picture is far from straightforward, the regulator said.
The paper also revealed that the reason why some consumers chose not to seek personal recommendations was due to staying in control of their investments and believing they were as capable as a financial adviser.
Why did you bother sitting all those examinations again?
Oh yes, so that consumers could feel as qualified as you are.
Growing numbers don’t want to meet you in person
The FCA has admitted the way that customers choose to buy financial services products has changed radically over the last decade.
Research by Mintel in April 2014 showed that around 40 per cent of customers currently prefer to receive personal recommendations face-to-face rather than online, although 24 per cent would be willing to receive personal recommendations online.
The FCA warned while there is a specific exclusion in Mifid for generic advice given through the internet, where information is, or is likely to become publicly available, the FCA instead feels delivery is key.
By its nature, generic advice given through these distribution channels will not normally be a personal recommendation.
However, the FCA warned it is unlikely that this exclusion would apply to messages sent to individuals that are not publicly available. This is particularly relevant to interaction with customers through email and social media.
Newsletters and investment tip sheets do not constitute personal recommendations if published or distributed publicly, but according to rules from Europe they may be viewed as personal recommendations if, for example, they are tailored and distributed to named individuals.
So, if you are happy enough never to actually come face-to-face with a client then you clearly must make sure your nose is buried in the Twitter-sphere or develop an online advice proposition.
Pushing clients towards model portfolios is not necessarily advice
The FCA also warned about pushing people towards products online.
Whether or not providing a customer with access to a model investment portfolio amounts to giving a personal recommendation will depend on the particular circumstances, the FCA said.
If a firm were to provide, via its website or through another medium, the possibility for investors to determine their investment profile, and each profile discloses a related model portfolio composed of specific financial instruments, this this may not amount to giving a personal recommendation, the FCA said.
Anyone who has ever tried to force their way through the regulator’s swathes of red tape will have sympathy for advisers attempting to make a penny out of offering simplified advice.
For services where customers purchase investments without a personal recommendation, the FCA revealed a recent review found that most firms had taken steps to identify the target market their service was likely to be appropriate for and used this analysis to inform its design.
Within these firms the FCA revealed it was concerned that uncertainty regarding the application of the regulatory framework (or an overly cautious interpretation of how it applied) had led firms to exclude information and/or tools that were likely to support customer decision-making, or help reduce the impact of common behavioural biases and prompt better decisions.
I could have told you this years ago: Too much red tape breeds fear and inertia.
What is in a word?
We all know the FCA loves a definition.
The difference between ‘information’ and ‘investment advice’ is the element of opinion or judgement on the part of the adviser, either in person or, for example, online, the latest guidance consultation reveals.
Regulated advice involves recommending a course of action or making a judgement on the merits of exercising a right (for example, to sell or buy).
Generally speaking, the FCA stated giving someone information and nothing more, does not involve giving regulated advice.
However, the FCA warned the circumstances in which information is provided could make it regulated advice.
For example, if information is provided on a selected rather than balanced basis so that it influences or persuades, may be regulated advice.
Providing definitive guidance on whether something is regulated advice depends not only on the facts of the individual case, but also the context, the FCA argued.
Is that clear? Good. Then let us turn to Twitter.
Too many Tweets could make you a Twit
Many of the messages sent or ‘posted’ in batches to customers or potential customers are unlikely to amount to personal recommendations.
But to assess whether a ‘message’ sent to several customers amounts to a personal recommendation, the FCA stated different factors need to be taken into account, for example, the target audience and the content of the message.
The way the firm selects the customers to whom the message will be sent can have a bearing on whether the ‘message’ constitutes a personal recommendation, according to the watchdog.
However, highlighting the particular personal circumstances that led the individual to be contacted, for example, is very likely to mean the product is being presented as suitable for the particular customer, the FCA argued.
Content of the ‘message’ is also key, according to the regulator.
If the context, tone and language of the message, amounts to a recommendation, for example, because it contains a solicitation, an opinion or a judgement about the advisability of a transaction, the FCA could judge your Tweets as being personal recommendations.
So, don’t say “Shut up and die. Buy burial insurance. I thought I would Tweet you this as you are over 50” just to your elderly clients. This could be seen as a personal recommendation rather than a joke. Got it? Good.
