FCA clarifies advice-guidance difference amidst ongoing review

Elizabeth Budd and Venetia Jackson of Pinsent Masons said firms would welcome the new guidance being issued ahead of expected changes to follow from a review the regulator is conducting in tandem with the government into the boundary between ‘advice’ and ‘guidance’.

In UK financial services, information provided to retail investors that constitutes a ‘personal recommendation’ is subject to specific regulatory requirements applicable to the provision of financial advice. Firms must be authorised to provide such advice. Information provided to retail investors that does not qualify as a personal recommendation is subject to general financial services regulation. Firms providing either advice or guidance to investors must comply with the new consumer duty.

Budd and Jackson said the latest details of the review suggest it will involve more than just changes to regulated advice. There is a clear desire to ensure firms deliver adaptable support to retail investors, which they said could allow firms to develop new innovative solutions. They further highlighted that the regulator is looking for management of risk, not elimination of risk, and is mindful that solutions have to be commercially viable. It is also clear that the consumer duty will be a major consideration in the review, with the FCA keen to ensure customers are protected and supported.

To help firms “support consumers more, particularly during the increased cost of living”, without straying into providing a personal recommendation, while the review is ongoing, the FCA has issued new guidance.

The new guidance reminds firms of the definition of a personal recommendation – as “a recommendation made to an investor or potential investor in relation to a security, structured deposit, or a relevant investment that is presented as suitable for the person to whom the recommendation is made, or is based on a consideration of that person’s circumstances” but which “excludes a recommendation issued exclusively to the public”. Not all advice given by a firm will necessarily be a personal recommendation and subject to the stringent rules applicable to these recommendations.

To assist firms, the guidance contains examples of when support given to retail investors will not qualify as a ‘personal recommendation’ and on how to comply with the consumer duty.

Budd and Jackson said that a common theme to these examples is the need for firms to provide a customer with more information around the choice they are considering. This includes information about product features to be aware of, what the product they are looking to interact with is designed to do, or highlighting other options such as joint annuities for the customer to consider. The FCA also suggests signposting to other tools can be used, or general information can be published on websites for all customers, such as ways to mitigate investment losses.

The consumer duty examples provide concrete steps that firms can take in particular scenarios, such as pension transfers, long term cash holdings, and general disengagement with an investment.  These steps will enable and support customers to achieve their financial objectives and will help avoid foreseeable harm in line with the cross-cutting rules in the consumer duty, Budd and Jackson said.

Budd said: “This is a welcome update from the FCA on an area that is often very difficult for firms to navigate successfully. The FCA has signalled a clear desire to see innovation in this space, which offers significant opportunities to firms. However, given the risks that firms face if it is concluded that they have been giving regulated advice, greater clarity is important to enable innovation to take place. The promised autumn policy paper will be key reading to understand whether this review will result in any greater legislative clarity.”

“The clarificatory guidance published is a useful step in assisting firms navigate the boundary. It is particularly helpful to have concrete examples relating to common products with specific steps that firms can take. The clear explanation of the difference between advice and personal recommendations is also to be welcomed, especially as firms are now required to comply with the consumer duty. Firms will also welcome the news that the FCA has liaised with the Financial Ombudsman Service (FOS) over this guidance and the FOS has confirmed that this guidance will be taken into account when customers bring complaints around the support they have received in this area.”

Jackson said: “In referencing the consumer duty, the FCA is making it clear that it expects firms to actively engage with the advice/guidance boundary and consider what more they can do to support their customers. It can be a difficult balance, but the examples give useful indications of the types of information and signposting that can be considered.”

“The use of general website publication, for example, to avoid giving a personal recommendation is an easy way to provide information. Greater challenges may be faced in ensuring that staff supporting customers in individual queries have available all the information they need to support customers with helpful information and signposting without straying into recommending a course of action. This is also an area where firms’ monitoring is likely to come in useful in identifying where further information and support can best be applied,” she said.