This month's question: Has the FCA provided enough clarity on advice versus guidance?
Alan Chaplin, integration manager at Systemsync Solutions
The FCA has determined that consumers are confused when it and the financial services industry try to explain the difference between advice and guidance. Many consumers think the terms are interchangeable. This is hardly surprising; they are synonyms.
The FCA’s answer, trying to explain the difference more clearly, seems to be tying it up in knots.
One of differences it has introduced is that guidance generally leads to a “suggestion” for a course of action, whereas advice results in a “recommendation”. It has apparently failed to notice that the words suggestion and recommendation are also commonly interchanged.
Rather than try to redefine the English language to suit the FCA and the financial advice industry, it might be better to use existing, simple, well understood words and phrases to define who and what the FCA regulates and, more importantly, what that means for consumers. For example, explain that regulated advisers are vetted and have to have qualifications for some types of work so are likely more knowledgeable. In the event of poor quality advice, the consumer has some protection whereas if they use someone else, there is none.
In trying to define everything it considers regulated financial advice in one word and everything else in another, the FCA is falling into the trap of making things too simple. As Einstein reportedly said: “Make everything as simple as possible, but not simpler.”
Kusal Ariyawansa, chartered financial planner at Appleton Gerrard
A recent visit to my local pub saw me rant about the time being taken to complete a small extension. Be it underfloor heating, tiles or décor, I was offered advice from several parties. What they said was factually correct, but comments that I should choose porcelain, connected devices through a network and a smart camera system were among several things that went over my head.
Only after I sought clarification about this “advice” from my architect and builder did I receive bespoke advice. Their collective words were clear: based on what I said and like, and how the house set up, their advice was quite different to that provided by the guys in the pub. Suffice to say I went with the experts who understood what I wanted and needed, and who recommended long-term solutions based on my circumstances and budget.
Several consumer champions despise the fact that we “own” the term advice. But given the regulator’s primary duty is to protect the consumer, it should cement this ownership by encouraging everyone to seek advice from qualified individuals.
The public should take comfort in the fact that professional advice qualifies for compensation, while anything else is mere guidance. I am more than happy to provide guidance to the public at a much lower cost, and anyone can access guidance through the Money Advice Service. It is vital that the regulator articulates the value of the protection provided by bespoke advice through a personal recommendation.