In the Oxford Dictionary, guidance is defined as advice or information aimed at resolving a problem or difficulty, especially as given by someone in authority.
In the advisory market it has a different meaning that, if gotten wrong, could be a very costly mistake for an adviser.
In the 2016 the Financial Advice Market Review (FAMR) report recommended the establishment of a Financial Advice Working Group (FAWG), to focus on consumer explanation of advice and guidance.
Firms had also told the FCA they did not feel able to develop more streamlined advice services that met simple consumer needs.
As a result, many consumers who were seeking support through guidance or limited forms of advice were either unable to access support or ended up paying the cost of full advice, even when their needs were comparatively simple.
In a later study by the working group, it found that consumers felt that the concepts of advice and guidance were confusing and esoteric terms which did not instinctively fit into the broad range of ways in which consumers look for help with their final decisions.
Nicky McCabe who was chair of the advice and guidance sub-group Financial Advice Working Group said: “Yet once clear explanations are used, written in straightforward language, and with the two services presented side-by-side, “advice” and “guidance” can be quickly demystified in a way that cannot be achieved by simply changing the terms.”
So what does that mean in practice?
In the advisory sector, when talking about advice, it is mostly in reference to making a personal recommendation.
A personal recommendation is a recommendation to an individual to take a course of actions to buy or sell an investment, either on the basis of their personal circumstances or if presented as a recommendation.
Mark Turner, a managing director in the UK compliance and regulatory team at consultancy Duff and Phelps says: “It can be simply down to the client perception as to whether they have received advice. For example, if I went to see an adviser, and showed him paperwork of my pensions and he said, 'Mark, you need to go and invest this somewhere else', that is advice.
“The fact that I have not signed any paperwork or he has not given me a suitability report doesn’t diminish his responsibility that he is giving me advice there.
“To say, for example, that equities are higher risk instruments and bonds and cash are lower risk, that is factual info. He cannot say, 'Mark you are in equities, you need to go into bonds', and call that guidance.”
Mr Turner adds that although firms had previously grappled with the concept of advice and guidance, firms on the whole are now more comfortable with advice and information.
However, there is still a grey area in terms of digital wealth managers and the concept of robo-advice where they are providing information only, or where they are recommending a client take a particularroute.