The Financial Advice Working Group (FAWG), a panel created to oversee recommendations made by the Financial Advice Market Review (FAMR) last year, has proposed clearer explanations for “advice” and “guidance” that would help consumers make better decisions on financial matters.
The group, which was originally tasked with replacing the terms, has now decided to keep the definitions but is urging firms regulated by the FCA to set clearer explanations on the difference between “advice” and “guidance” in relation to their services.
“On balance, the FAWG is of the view that the terms for ‘advice’ and ‘guidance’ should not be changed as there is no clear consumer preference for new terms to justify the costs of changing them,” said the consultation paper published on the FCA website.
“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,” explained Nicky McCabe, chair of the advice and guidance sub group.
The reports says “clear explanations promote a better understanding of the services available, the associated costs and implications for decision-making, and consumer rights to protection and redress. They improve consumers’ awareness of where and how to access the support they require.”
“Making a real difference to consumers’ understanding of “advice” and “guidance” will require widespread adoption of the explanations – they need to become the de facto standard in both regulated and unregulated parts of the industry,” added McCabe.
Working with the FCA and the UK Treasury, FAWG has now created “clear, consumer-friendly explanations” of the two services which it will expect advisers to adopt (show in the table below).
Source: FCA
Clear understanding
Richard Freeman, Old Mutual Wealth chief distribution officer and member of the FAWG, said it is critical consumers receive a clear and intuitive explanation of the service they are receiving.
“Many people underestimate or fail to recognise the key benefits of taking advice from a qualified adviser. Ensuring they have a clear understanding of the distinction between advised and non-advised services will encourage people to look more closely at the value of advice,” he said.
