A personal recommendation has been defined as “a recommendation relating to taking certain steps in respect of a particular investment, made to a person in their capacity as an investor or potential investor, which is presented as suitable based on a consideration of the person’s circumstances”.
Meanwhile, regulated advice is now defined as “Advice relating to a particular investment given to a person in their capacity as an investor or potential investor and relates to the merits of them buying, selling, subscribing for, or underwriting the investment”.
The definitions come after the regulator’s 2013 investigation into the “expectations gap” – the difference between its expectations of advice firms and firms’ understanding of their requirements.
The project looked at how ambiguities in the definitions of advice and recommendations may affect the availability of products and services offered to customers.
It was also driven by a fear that the ambiguity could mean firms shy away from products or services that would benefit clients for fear of falling foul of the rules.
The FCA also said a factor preventing advice firms from developing new advice models was uncertainty around how the Financial Ombudsmen Service would react to unresolved complaints.
“No doubt”
Anthony Villis, partner at First Wealth, said he had “no doubt” that many advisers shy away from recommending certain investments, such as structured products and venture capital trusts.
He said the complicated documentation and due diligence required on new investments takes time and could create regulatory concerns.
“Clearly, every client has to be assessed on their own situation, risk appetite and capacity for loss,” he added. “However, to completely rule these products out due to regulatory issues is doing the client a huge disservice.”
“It’s too easy just to put a clients into a risk rated Centralised Investment Solution. It ticks all the boxes, but is it really best advice? Probably not.”
David Geale, director of policy at the FCA, said: “A healthy advice market is one in which a range of different models exist and develop to suit the needs of a broad spectrum of investors.
“We believe that this guidance will give firms the confidence to innovate to provide new, streamlined advisory propositions with a clearer understanding of their responsibilities and of where the boundaries lie.
“Importantly, we received a significant number of responses to our consultation. We have taken on board that feedback and the guidance today is stronger, and clearer, as a result.”
