The Financial Conduct Authority has set out proposed rules for how the new definition of financial advice will work.
Last year HM Treasury proposed changing the definition of advice so it only includes personal recommendations.
In a consultation paper published today, the FCA has said this will mean guidance will cease to be a regulated activity for the majority of authorised firms.
But it has proposed that the same rules should apply to authorised firms when they provide guidance as when they carry out other unregulated activities.
This means the client’s best interest rule, the principles for business and the fair, clear and not misleading rule will all apply.
But this also means that those receiving guidance will have access to the Financial Ombudsman Service and the Financial Services Compensation Scheme.
The FCA said this would protect consumers if a regulated firm gives them misleading information when offering guidance.
It said: “For the avoidance of doubt, where a customer does not receive a personal recommendation, firms would not be subject to the regulatory standards that apply when offering such advice.
“We believe that this approach should make it easier for consumers to understand their position.
“It should also allow firms to give a much clearer description to consumers about their rights of complaint and redress which we believe will make such services more attractive.”
The FCA has also said it will consider its inducement rules again, in light of the changing definition of advice and has asked advisers if there is anything it needs to consider.
It added: “FCA adviser charging rules only apply where the firm provides a personal recommendation on a retail investment product or a P2P agreement.
“There are no rules that prevent a firm from charging for the provision of guidance.
“However, we propose to extend the ban on a firm accepting inducements to cover inducements which the firm may be offered in connection with its guidance business.”
On the issue of implicit personal recommendations, the FCA said that where a “reasonable observer” would view the adviser as presenting a recommendation as suitable for the customer or based on a consideration of their circumstances, then this will be treated as a personal recommendation under its rules.
The FCA said: “We believe that where an adviser says ‘people like you buy this product’ or ‘this is what I would do if I were you’ it is likely to be viewed as a recommendation of what is suitable for the customer or based on a consideration of their circumstances and is therefore a personal recommendation.”
The FCA has said it plans to publish a policy statement on these changes in December.
damian.fantato@ft.com
