A new advice status

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.

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.”

What FAMR has done is to bring a sense of focus to what actually constitutes advice. This is important as the boundaries are often a little blurry Richard Nuttall

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.”

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.

However, he adds: “Only if the views on ‘guidance’ are adopted to support firms offering services which help consumers make their own investment decisions without a personal recommendation.

“Too many people have laboured with uncertainty as to what simple advice might be or simplified or streamlined or limited.”

Yet not all respondents believe FAMR’s recommendations will make things any clearer or better for the delivery of financial advice and consumers understanding about what they are getting.

Gill Davidson, group regulatory director for the Tenet Group, says: “The FAMR titles are not inspiring and we doubt they will do much to clarify customers’ understanding of the various advice types without broader consumer education.”

Stephen Gazard, managing director for Bankhall, agrees: “FAMR will not go some way to making a clearer definition for advice, not based on the current proposals.”

Ms Davidson adds. “The market will be driven by the outcome of FAMR’s further work.

“In the meantime, there will be reliance upon the broader explanation given to clients.”

As Mr Richards explains: “Consumers are still likely to believe they received advice, demonstrating definitions and boundaries are useful for regulators and the industry but rarely make much sense to the public.

“In truth, the public were no better informed in a more simplified, ‘polarised’ landscape. People don’t know until they are enlightened.”