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16th March 2016

Proposed Changes to the Definition of Advice

The FCA has now completed and published their Financial Advice Market Review (FAMR).

Launched in August 2015, the FAMR was to examine how financial advice could ‘work better’ for consumers.

The FAMR was undertaken jointly by the FCA and HM Treasury with Charles Roxburgh (Director General of Financial Services at HM Treasury) and Tracey McDermott (current acting CEO of the FCA) at the helm.

What was the purpose of the FAMR?

The FAMR aimed to explore the ways in which government, industry participants and the regulators can each take separate and combined steps to stimulate market development in providing both affordable and accessible financial advice and guidance to all.

The report in particular provides recommendations that aim to:

• provide affordable advice to consumers;
• increase the access to advice; and
• address industry concerns relating to future liabilities and redress, without watering down levels of consumer protection.

What did the FAMR recommend?

To meet its objectives of making financial advice and guidance more affordable to everyone, the review asks that government look to revise the definition of regulated advice by narrowing it so that it is based upon a personal recommendation.

At present, the UK definition of regulated advice is defined under the Regulated Activities Order. In making this change, the definition of advice would also then be brought into line with the definition set out in the second Markets in Financial instruments Directive (MiFID II).

Why revise the definition of Regulated Advice?

By narrowing the definition of advice, this would create a single definition for what is considered regulated advice and thus remove some of the hurdles and expense that currently exist for firms that might want to offer what might be considered guidance services only to support customers in making their own investment decisions.

For example, if the definition changed as proposed then regulated firms that only provide services such as investment research, general recommendations and generic advice would no longer need to have permission from the FCA for ‘advising on investments’, unless of course they also wished to provide personal recommendations - and the same could be said for complying with the suitability rules. However, this would not change a firm’s need to continue to act in the client’s best interests and provide information that is clear, fair and not misleading.

It is now likely that HM Treasury will consult upon FAMR’s proposed changes to existing legislation.

FAMR: Proposed Changes to the Definition of Advice