How far will FCA ‘advice’ definition creep?

The Planck length is - if my vague memory of a New Scientist article is correct - the point beyond which it becomes simply impossible to measure anything. The closer you get to the Planck length the more difficult it becomes to distinguish between two points.

The Financial Conduct Authority could be approaching its own version of the Planck length in its definitions of what is and is not advice.

Altus’ Kevin Okell said earlier this week that providers of direct-to-consumer platforms are being held back by an ‘obsession’ over the definition of advice. Mr Okell says instead they should focus on consumer experience and ease of use and not worry over the exact definition of advice.

I’m not so sure.

After all, didn’t the FCA just this week open what might be a new front in what is fast becoming a true crackdown on non-advised financial services?

In a letter to a committee of industry representatives, the regulator looked at situations where a client receives a text or call or any kind of contact from a trading platform informing them than one of their chosen fund managers has made a move, giving the client the opportunity to make a similar move.

Their initial feelings - this isn’t an official pronouncement keep in mind - was that that kind of contact could reasonably be interpreted as a ‘personal recommendation’, and therefore constitutes ‘advice’.

Providers of copy trading services could therefore find themselves required to gain the same kind of permission that IFAs need, or face criminal prosecution.

Here’s where it starts getting difficult.

The D2C platform market is booming. Several of these include lists of chosen funds, often with preferential negotiated rates.

Just today Trustnet announced the launch of the latest entrant Trustnet Direct, a D2C platform in what it calls an “increasingly congested” market.

Hold on a minute, Trustnet also hails itself as a provider of “high quality investment information, data, features and news... used by most of the top investment advisers in the UK plus a significant portion of Britain’s savviest private investors”.

So what happens if one of these savvy investors - or one of the less savvy ones even - reads a piece of analysis in a feature, and makes investment decisions based on that? Is that the kind of thing the FCA would think of as ‘feeling like advice’?

Or what about the Wealth 150 (or 150+) compiled by Hargreaves - the “investment-led” list of funds with preferential pricing that customers are told are well worth investing in? Does this list constitute a ‘recommendation’?

Also, what about where there is advertising around funds on these platforms?

In an article in the Telegraph, Clive Adamson says the regulator is looking at how the D2C market is changing and if customers’ interests really are at the heart of firms’ decisions. The article also cites sources close to the FCA as saying the regulator could compel brokers to justify their promotion of certain funds.

We already know the FCA is conducting a review of the execution-only market that will report back this year, and we now know it is precisely these areas it is honing in on.

Mr Adamson told The Telegraph: "We are looking at firms selling investments on a non-advised basis – where customers make their own decision on which products meet their needs and objectives.

“This will include how firms decide which products they make available to their customers, as well as the information and tools they provide to help them choose the right investments, and buy-lists will be part of this.”

At what point does the argument come down to interpretations of the meaning of a word? It’s easy enough to say ‘if it feels like advice it probably is’, but financial services is not a touchy-feely business and many meaty business decisions will hang on where the regulator draws its hard line.

There is always the possibility that the regulator wants to remain vague to avoid companies playing that annoying game of getting as close to the rules as possible, while staying within what can be argued by their expensive legal teams.

For example, a contact of mine forwarded me the FCA’s heavily redacted response to a Freedom of Information request on another topic, within which the regulator said a certain amount of ambiguity was desirable for exactly this reason.

I can understand this approach, but my own experience is that while this will likely keep smaller firms at bay it is the larger firms who will take advantage of porous boundaries in the hope that they can argue a case should the FCA raise questions.