The Financial Conduct Authority’s recent ‘Call for Input’ gives us all an opportunity to help the regulator improve the protections and outcomes for consumers in the investment market.
It poses 39 questions; however, here I will focus on just one: how the FCA can make it easier for people to understand the risks of investment.
The first important step is to eliminate the confusion between advice and guidance.
To be blunt, guidance is a misnomer and confuses consumers into thinking that it is a little bit like advice when, in reality, guidance is nothing more than information.
There is the old saying that if it looks like a duck and swims like a duck, then the chances are it is a duck. Guidance is an ugly duckling that, that unlike the fairy tale, will never become a swan.
The FCA must create clarity for consumers and help them understand the risks of investment by having the courage to get rid of the term ‘guidance’.
This simple term that everyone understands makes it crystal clear it is the individual’s responsibility to decide what action to take in the light of the information they are given.
Advice, on the other hand, is a highly regulated service for consumers, provided by highly qualified professionals, who, in the vast majority of cases, put their clients’ interests well above their own.
A vitally important difference between advice and guidance is that a consumer who opts for advice benefits from a whole range of safeguards, including the Financial Services Compensation Scheme.
The second major step the FCA needs to take is to ensure consumers are made fully aware that if they act on information, rather than advice, they are giving up all the important consumer protections they would otherwise enjoy.
If the FCA really is serious about improving outcomes for consumers in the investment market, it is essential that the stark differences between advice and information are clearly set out for every consumer.
Finally, the FCA is seeking to find a way to make the polluters pay, so as to put right the current grotesque and unfair system of funding of the FSCS. The review presents this opportunity, but it is going to be essential that the advice sector puts forward strong and coherent arguments.
I can assure you I will be doing my utmost in the coming weeks and months to bring this about.
Ken Davy is chairman of SimplyBiz Group