The consultation period has just ended on what appears to be the Treasury’s fairly innocuous proposals to amend the definition of regulated financial advice.
The objective of the proposal is to narrow the definition of financial advice, which on the face of it seems a very sensible and practical idea.
Unfortunately, narrowing the definition of advice means widening the definition of guidance. I have concerns that this will be to the detriment of consumers.
I can envisage in years to come the Financial Ombudsman Service being inundated with complaints from consumers claiming they thought the guidance they had previously been given was actually advice, so please could they have some compensation?
Protection of consumers, and their right to redress, is the crucial issue. If a consumer acts on regulated financial advice, they are rightly protected by a range of rules and regulations, which, importantly, include compensation.
None of these vital consumer protections apply to guidance, nor does guidance require an individual to be qualified or for the firm providing the guidance to abide by the strict regulatory requirements of regulated financial advice.
On numerous occasions, especially in relation to Sipps and unauthorised investments, complaints to Fos have been upheld even when the adviser has informed the client in writing that they are not providing advice, nor do they recommend the investment.
It seems to me that it will be impossible for Fos to resist finding in favour of a client who brings a claim on the basis that they thought the guidance they received was regulated advice. However, if the firm is unregulated, who will pay it?
Widening the definition of guidance, and therefore its availability, will only benefit consumers if at the same time clear mandatory warnings are introduced.
I believe it is essential that all “guidance”, whatever its source, should have to include a clear statement that it is only guidance and that as such the important consumer protections applicable to regulated financial advice do not apply and that, in particular, the consumer will have no rights to compensation should the outcome of acting on the guidance prove unsatisfactory.
Without this “clear blue water” between regulated advice and guidance, I fear that expanding the roll of guidance could turn into, at best, disappointment both for consumers and the Treasury and, at worst, an unmitigated disaster.
Ken Davy is chairman of SimplyBiz Group