The move follows the recommendations made earlier this year in the Financial Advice Market Review (FAMR), a joint review by the Financial Conduct Authority (FCA) and Treasury into how to make advice and guidance more easily accessible.
As a result, the Treasury is aiming to bring the definition of financial advice in the UK more in line with the EU definition set out in the Markets in Financial Instruments Directive (Mifid), which would mean that only advice which makes a personal recommendation would be regulated.
“FAMR found the Mifid definition is clearer for firms and consumers and is also much easier for firms to build into their compliance processes,” said the Treasury in a consultation paper on its website.
Two ways of defining advice
There are currently two ways of defining regulated advice – “advising on investments”, as set out in the regulated activities order (RAO) and “investment advice” as defined under Mifid.
The RAO’s definition, which predates Mifid, is broader and less specific than the terms under Mifid, and has created confusion among advisers on what is considered “advice” that will be regulated and what is considered simply “guidance”, said the Treasury.
“As a result of this uncertainty, FAMR found that firms are limiting the amount of guidance they are giving consumers for fear of inadvertently straying into the provision of regulated advice without meeting the higher regulatory requirements,” it added.
The government department also warned that “by stepping back from the regulated advice boundary, firms are providing less support to consumers and therefore increasing the risk that consumers make unadvised (and potentially poor) investment decisions”.
The consultation closes on 15 November, after which any changes to the definition will be made through an order under the Financial Services and Markets Act 2000, which would also require secondary legislation.
‘Streamlined’ advice
Tobin Ashby, insurance expert at Pinsent Masons, said redefining advice will bring it in line with fast-moving changes to technology in recent years.
“If the Mifid definition is adopted, it could provide a genuine distinction between more traditional advice and full automated advice models on the one hand and the higher level objective guidance that online providers have increasingly been developing on the other,” he said.
Ashby adds the move may “open the door” for a more “streamlined advice” as proposed under FAMR.
“The additional clarity could be to the benefit of both advisers and providers and could lead to an increase in the help made available to retail customers, whatever amounts they might have to save,” he said.
