I am sure Star Trek would have flopped had it just been a bunch of robots exploring the galaxies; it needed great characters to bring it alive for its followers. I am therefore delighted to see that the Treasury’s new definition of regulated financial advice makes it clear that a personal recommendation has to be exactly that, a suitable recommendation made to a person in their capacity as an investor or potential investor.
The new definition will apply from next January and (despite Brexit) will exactly match the definition of investment advice set out in MiFID II. These requirements are unlikely to be attractive to the firms promoting so-called robo-advisers, with even the term, in essence, condemned to the dustbin.
A critically important change is that the new definition means that advising a client to retain a product will count as investment advice, and therefore will require a suitability report. In practice, therefore, advising a client that no changes are required is not just a box-ticking exercise. This is a significant change, which has massive implications for advisers and potentially the FSCS and Fos, while also highlighting the importance and value of continuing service to clients.
During the consultation process, I was concerned that unregulated firms would end up being able to promote investments to individuals through so-called guidance services. This would have led to poor outcomes for consumers who may have followed guidance without realising they were forfeiting all the protections that accompany regulated financial advice, while putting themselves at even greater risk from scams by unscrupulous individuals. Thankfully, the revised definition means that unregulated firms will not be able to provide investment advice.
In addition, the news is that 'robo-advice’ is unlikely to qualify as advice, as no personal recommendation is being made. The recognition of this basic fact is something I have long argued for, as the reality is that digital guidance needs human involvement to make it of real value to consumers.
The FCA will be consulting further on the detail of the new definition of regulated financial advice. However, I believe that the new definition is a positive change that will bring greater clarity for all advisers and is another worthwhile step towards increasing consumer awareness and confidence. So, “Beam me up Scotty”; we have clients to serve.
Ken Davy is chairman of SimplyBiz