Treasury's advice definition change 'does nothing' for clarity

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.

But a number of industry figures have questioned who would benefit from the move and what the point of it is.

Chris Hannant, the director general of the Association of Professional Financial Advisers, said: “I am struggling to see how this changes the world.

“I am slightly sceptical about what this would achieve. What your average adviser does will be completely unaffected by this.

“I have tried to get the Treasury to explain what they think they are achieving and I got a very vague answer. They are solving a problem that doesn’t exist.”

The change would bring the definition of advice in line with European regulations introduced in the original Mifid.

I have tried to get the Treasury to explain what they think they are achieving and I got a very vague answer.Chris Hannant

Steve Patterson, managing director of Glasgow-based Intelligent Pensions, said the main change would mean that for advice to be regulated advice, the recommendation must be presented as suitable for the person to whom it is made or based on the investor’s circumstances.

Under the current regime, he said, it would potentially be considered regulated advice even where nothing was stated about the suitability of the recommendation for a particular individual.

He said: “This might help firms in promoting investments by ensuring that as long as they don’t make any assessment of, or comment on, the suitability of the investment for a potential investor, their promotional activities won’t be subject to the constraints and rigours of a regulated advice process, but I can’t see how it helps the public at large.

“It certainly does nothing to clarify the difference between guidance and advice. It’s high time this was sorted out by the regulatory authorities.”

Keith Richards, the chief executive of the Personal Financial Society, acknowledged that most advisers would probably already make a similar distinction between guidance and advice.

He said: "It is fair to say that consumers have for a long time been confused by some of the terminology used in the advice marketplace, and in particular the unclear distinction between guidance and advice, let alone the difference between simplified, focused, gated and basic advice.

"Extending the scope of guidance is potentially one of the biggest step-changes to come out of FAMR, to address entry level or less complex savings needs and potentially going a long way to increasing access to information leading to better informed decisions.

"While this is an important step to bridging the advice gap, the next step will be for Treasury, the FCA and the wider financial services community to educate consumers about what the new definition of advice and guidance means in a practical sense."

The Treasury reviewed the definition of advice after committing to do so in the Financial Advice Market Review.

It found some companies were less willing to offer less expensive guidance services because they were uncertain about what regulated advice - where the adviser accepts liability for a recommendation - consists of.

Tobin Ashby, insurance expert at Pinsent Masons, said firms providing robo-advice would benefit most.

He said: “If the Mifid definition is adopted, it could provide a genuine distinction between more traditional advice and full automated advice models on the one hand and the higher level objective guidance that online providers have increasingly been developing on the other. 

“This would open the door to the follow-up FAMR proposals' on streamlined advice, rules of thumb and nudges being much more effective.

“The additional clarity could be to the benefit of both advisers and providers and could lead to an increase in the help made available to retail customers, whatever amounts they might have to save.”