D2C platforms 'blurring' investment guidance and advice need regulatory clarity, says AXA

David Thompson, managing director of the AXA Elevate platform, said greater clarity was needed from the Financial Conduct Authority (FCA) in order to establish the legal boundaries between investment guidance and investment advice, according to a report by New Model Adviser.

"There is a regulatory challenge in this, whether to go for simplified advice, execution-only or guidance," Thompson said, according to the report. "Some direct-to-consumer platforms are blurring the edges and pointing you in the direction of particular funds. We need far more [advice] on how to do this."

"People do need some form of advice, and for direct-to-consumer propositions to be effective, you have to offer some help," he added.

D2C platforms offer consumers the ability to invest in financial products, such as stocks and shares, without doing so through a financial adviser. Whether a D2C platform is itself said to be offering retail investment advice through the information it displays is a critical issue, as the provision of retail investment advice has been subject to stricter regulation since the end of last year.

Under the Retail Distribution Review (RDR) regime, financial advisers are required to inform clients whether they are providing advice on an 'independent' or 'restricted' basis, and they are prohibited from receiving commission from product providers or fund managers for recommending to clients that they invest in particular products or funds. Those rules do not apply to 'execution-only' platforms, which do not offer advice when allowing investors to select which products or funds to invest in. Execution-only platforms will however be subject to significant limitations when new rules specific to platforms and around the practice of rebating take effect from 2014.     

Last month Rory Percival, the FCA's technical specialist, said that "the customer’s perception is a very key determinant" of whether information provided about retail investments constitutes advice.

Financial services law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, previously said that Percival's warning about consumer perception "should not be overstated or taken too literally".

"For instance, a platform would not want to rely only on the findings of market research testing as to the views of a focus group of customers," Salmon said. "They should also consider objectively whether any platform features suggest that a customer should take one course of action over another."

"Beyond the broad 'look and feel' test suggested by the FCA, platforms should consider whether risk assessment tools and any model portfolios generated by the platform could be viewed as recommending a certain course of action," the expert added.

In his financial services blog Salmon said that there remains uncertainty over whether the display of 'best buy' lists or promotions offered other providers by D2C platforms could be construed as advice.