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A new advice status

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Guide to independent versus restricted advice

A new advice status

The Financial Advice Market Review (FAMR), which was tasked with looking at ways to extend access to advice, pondered whether an extra advice status could help consumers.

When the 85-page Financial Advice Market Review: Final Report came out, it discussed bringing into force a ‘third’ definition of advice (outside of restricted or independent) in the form of ‘simplified’ or ‘streamlined’ advice.

This would replace the current ‘guidance’ definition, which vaguely describes ‘free’ information given to a consumer without a recommendation attached to it.

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According to a spokesman for the Financial Conduct Authority (FCA), FAMR will go some way to making a clearer definition of advice.

Section four of the FAMR Final Report states: “HM Treasury should consult on amending the definition of regulated advice so regulated advice is based upon a personal recommendation, in line with the EU definition set out in the Markets in Financial Instruments Directive.”

Keith Richards, chief executive of the Personal Finance Society (PFS), says extending the scope of guidance which can also be employed by regulated financial advisers is potentially the biggest step-change to come out of FAMR.

“It could increase access to advice for less complex [cases] but excludes the need for a personal recommendation.”

SimplyBiz Group’s compliance team certainly hopes FAMR will provide better clarity.

Liz Coyle, compliance policy manager for SimplyBiz, says: “FAMR, combined with the changes to the definition arising from the European Union’s Markets in Financial Instruments Directive, are welcomed.

“The involvement of all parties in the discussion is beneficial, and firms should be encouraged to engage with the project to ensure their views and the nuances of the situation are fully understood and taken account of within the outcome of the review.”

Her colleague Richard Nuttall, head of compliance policy, adds: “What FAMR has done is to bring a sense of focus to what actually constitutes advice. This is really important as the boundaries are often a little blurry.

“Couple this with the development of robo-advice services and the upcoming legislation within Mifid II and we are likely to see changes to this definition.

“Above all, greater clarity is needed, not only for advisers that have to apply the appropriate regulatory rules but for consumers to understand what level of regulatory protection they will receive.”

FAMR - Box 6: Suggested Terms

Financial guidance

Guidance without a personal recommendation

Assisted self-help

General advice

Financial help

Tailored information

Financial advice

Advice with a personal recommendation

Specialist advice

Regulated financial advice

Professional advice

Personal advice

Financial planning

Source: FAMR, p 49

Some way to clarification

However, many commentators believe amending the guidance definition or extending its scope will not go quite far enough to create simple, understandable definitions of what advice really is, and why it is valuable.

According to Tim Sargisson, chief executive of Sandringham Financial Partners, FAMR will “go some way” to making a clearer definition for advice.