Fiona Tait, pensions specialist at Royal London, has responded to HM Treasury's plans to redefine financial advice by saying a simple and clear definition of what constitutes financial advice has been needed for a long time.
Yesterday (21 September) questions were raised about the usefulness of HM Treasury's proposed new advice definition.
The Treasury has proposed changing the definition of advice which would effectively mean that only advice which makes a personal recommendation for a suitable course of action tailored to the individual would be regulated.
Ms Tait said: "Consumers do not understand the difference between advice and guidance or crucially, the protection they get under each route.
"Unfortunately, these terms are often used interchangeably, notably by the then Chancellor in his 2014 Budget speech.
Ms Tait added this was not about the labels but about consumer understanding.
She said: "Royal London believes the distinction between ‘you have received a personal recommendation from...’ and ‘Do you understand that this information has been given for guidance only and does not constitute a personal recommendation’, is one that the public could understand and relate to.
"Further information could then be provided regarding the specific consumer protection for each particular option.
For advisers, HM Treasury suggests the advantages of a new definition of advice are more protection against future claims on the advice that has been given, and based on this, the opportunity to then offer more lower-cost guidance services.
Ms Tait added in reality, existing advice firms will probably not change the way they do business too much as a result of the revised definitions but they can be clearer about the value of the service they are delivering.
"We also fully agree with adviser comments that any definition that is agreed must be adopted universally, by both the regulators and the Financial Ombudsman Service.
The definition of a ‘personal’, as opposed to a ‘specified’ category or group of people, could also be an issue.Fiona Tait“There still remains a concern that some firms may try to exploit the fact that some higher-risk investments are not regulated products and won't be covered; and that the definition of a ‘personal’, as opposed to a ‘specified’ category or group of people, could also be an issue."
Ms Tait added these potential problems are however already in existence and the proposed new definition would not seem to increase the risk. We suggest further measures could be taken separately from this proposition to address them.
“Finally, it does not appear that the issue of specialist advice is addressed in this consultation. Just as consumers can be confused by ‘advice’ and ‘guidance’, we believe there is a similar issue with the use of ‘independent’ and ‘restricted’.
"Royal London believes there should be a clear distinction between those advisers who are restricted because they are influenced by ties to product providers, i.e. not ‘whole of market’ and those who are restricted because they are a specialist rather than a general practitioner."
She said dealing with a specialist, in any field, can deliver a very positive outcome for consumers and should not appear to be of less value than holistic ‘whole of market’ advice, but simply a different approach.
