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How important is the distinction between advice and guidance?

This article is part of
Guide to advice and guidance

The FCA has done a huge amount of work on guidance and advice and it is currently reviewing how this area of the market is working.

As part of that in May this year it asked for adviser feedback on how FAMR and RDR are working.

The regulator expects to publish its final report in 2020. 

When the FCA launched the FAMR in 2015, it set out to make access to financial advice and guidance more affordable and accessible. 

The findings and the final report were published in June 2016.

The review took place against a backdrop of an increasing need for individuals to take more responsibility for their own financial future. 

Social and demographic changes such as an ageing population, changes in the housing market, and changing employment patterns, had combined to make the decisions people face more complex and varied. 

People were, however, making a greater number of these decisions without any, or with only limited, advice or guidance, because of an increasing use of technology and a greater awareness of the cost of advice. 

And the situation was compounded by a distrust of financial services companies. 

“At the time the FCA said: 'We believe that the RDR has brought about a positive step change in the quality of advice available to those with larger amounts to invest.

“However, steps need to be taken to make the provision of advice and guidance to the mass market more cost-effective. 

“The market currently delivers high-quality solutions to those who can afford advice.

“However, not everyone wants or needs a personal recommendation in respect of every decision, nor do they always need a comprehensive assessment of all of their financial circumstances and requirements.

“It is clear, though, that people would often like more support in understanding the options that are available to them.

“More can be done to create an environment in which firms can deliver tailored services which give consumers advice on a more limited basis or the guidance to instill consumers with the confidence to make their own decisions. 

The FCA went on to say that one of the principal areas identified by firms as a barrier to providing this kind of guidance was uncertainty about the boundary between regulated advice and more general forms of help.

The regulator added: “The market has evolved considerably since the RDR and FAMR were introduced, we will also use this review to assess the future of the market. 

“We will consider market developments, and whether advice and guidance services meet current consumer needs and will do so in the future.”