What’s in a word?

It is the intention of the government and regulators to consult on building “a single clear definition of financial advice” – a move that could herald a revolutionary step forward for financial advisers, albeit one that is 20 years overdue.

This seemingly innocuous line opens the door to all manner of exciting change in the future and could well be the recognition the adviser sector has long been waiting for. Of course, the Budget itself is up in the air following the resignation of the work and pensions secretary Iain Duncan Smith.

The apparent climbdown by the Government on some aspects of the disability benefit cuts outlined in the Budget will need to be analysed carefully and there may well need to be amendments to the Budget as the Finance Bill passes through the Commons, but the commitment to a definition is unlikely to be altered much.

This plan is decades overdue but may finally mark the realisation by the Government that financial advisers are not the enemy, but rather a powerful ally to help consumers make wiser decisions.

Indeed, several other Budget changes, such as tapping pension funds to pay for financial advice and other advice reforms, produced the most positive Budget for advisers for many years.

The commitment to consult on a definition is, however, potentially the most interesting idea and was outlined in the Financial Advice Market Review (FAMR) published a couple of days before the Budget and hinted at some time ago.

It is worth remembering that the UK financial advice sector has long been hampered by a plethora of confusing terms for financial advisers. Some of these terms are used by wolves to disguise their real intent.

The UK financial advice sector has long been hampered by a plethora of confusing terms for financial advisers

Most advisers choose an appropriate term, but it is bizarre that in the UK in the 21st century we do not have legally binding terms and definitions for what constitutes financial advice and what a financial adviser should look like.

The public, I suspect, often shun the advisory sector because they have no idea who they are dealing with or what their qualifications mean. They will meet people who call themselves IFAs, financial consultants, wealth managers, financial planners, financial planning consultants, certified and chartered financial planners and so on – a baffling array.

However, when I go to see a GP I know they are qualified to at least a minimum level. The same is true with chartered accountants, solicitors and so on. Financial advisers though? It is a lottery for the public. For these reasons, I welcome the Government’s move as a meaningful commitment to reform.

The Budget documents state this in section 1.115: “The Government welcomes the recommendations of the Financial Advice Market Review, which aims to support the provision of affordable and accessible advice for everyone, at all stages of their lives.

“FAMR was a joint review between the Financial Conduct Authority (FCA) and HM Treasury, and its recommendations were published on 14 March. The Government commits to implement all of the recommendations for which it is responsible, and will consult on introducing a single clear definition of financial advice to remove regulatory uncertainty and ensure that firms can offer consumers the help they need.”

The comment about regulatory uncertainty is interesting, and suggests the Treasury or others have leaned on the FCA to move this proposal forward. I certainly hope so. Why the FCA has never clearly defined financial advice before is utterly baffling, but perhaps trying to keep all sides happy has been too much of a challenge.

The clear definition should open up the gateway to other changes such as a clear definition of a financial adviser and, perhaps, a clear definition of different types of adviser. It may ultimately be wise for advisers to have one single, nationally understood term – in the same way as for GPs – to define what they do and how they do it. I am sure many consumers would welcome this.

It is not beyond the wit of the FCA and the Treasury to work with the professional bodies to define key adviser terms.

In Quebec in Canada, for example, the law protects the title of financial planner. Only a person who holds a certificate issued by The Autorité des Marchés Financiers (AMF) “or a member of a professional order with which AMF has entered into an agreement”, may use it. Why not here?

I have lost count of the number of times recently that I have seen financial providers and others use the term financial planner for any adviser they employ to give advice, regardless of their ability or experience or appropriate professional qualifications. That needs to stop.

Kevin O’Donnell is a financial writer and journalist