When does guidance become advice?

Giving financial advice can be a dangerous business, as many advisers know to their cost. Providing ‘guidance’ is much less risky, but when does guidance become advice?

It is a question I have been asking after reading about The Pensions Advisory Service defending itself against accusations that Pension Wise staff may recently have given advice rather than guidance.

I am a financial journalist, not a financial adviser, but I am often asked by friends and acquaintances a variety of financial questions such as: “Is it the right time to buy VW stock?” or “Should I cash in part of my pension?”

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My stock answer is always the same: “Ask a financial adviser.” But inevitably I am pushed to ‘advise’ on matters on which I have limited knowledge. ‘Insistent’ friends, if you like.

I have always endorsed the saying “a little knowledge is a dangerous thing”, and I have not changed that view. That still does not stop people asking, and given the dearth of good advice in this country, that is probably not surprising.

I am sure many financial advisers are often faced with the same dilemma. You meet someone at a sports event, social gathering or whatever, and when the new acquaintance finds out what you do, the questions pour out. I am sure advisers have their own strategy for dealing with that.

I dare say other professionals, be they in law, medicine or accountancy, experience the same issues to varying degrees, and I suspect it is practically impossible to stop members of the public trying to get some advice for free.

Pension Wise, the government initiative to bring pension ‘guidance’ to the masses, at least does offer help for free, but are its staff being pushed to go too far? At a recent FTAdviser.com Retirement Freedom Forum, Melinda Riley, head of policy at The Pension Advisory Service, was asked if one of its advisers had gone too far in making recommendations related to questions about the tax efficiency of taking lump sums from a pension (see ‘Pension Wise not giving advice’, page 37). Ms Riley said the adviser had not crossed the line in explaining the options.

I am sure she is correct, and there will be strict guidelines in place to prevent TPAS or Pension Wise staff from straying too far from the script. There will also be close monitoring of what was said to prevent ‘guidance’ on the options available being perceived as ‘advice’ as to what to do next.

As advisers know, there is a world of difference between guidance and advice. Guidance on the options available might be given to a potential new client in an initial free half-hour consultation with an outline of the fees to be expected if full financial advice is needed. This is something many advisers and planners offer. It is just a taster of what is to come, whereas full-scale pensions advice, including analysis and recommendations, will cost hundreds if not thousands of pounds, and require dozens of hours of research and assessment.