The group said the lack of distinction between advice and guidance should be one of the principle outcomes of the Financial Advice Market Review (FAMR). This is crucial to improving consumer engagement with financial services.
The two key risks of not addressing this ambiguity are that people may think they have received advice specific to their needs when they haven’t, or they may not understand the value of financial advice or guidance and bypass both.
Clearer definitions
The group said the FAMR must identify a clearer definition of what consumers can expect from financial advice relative to guidance services with simple FCA-approved definitions replacing the existing definitions. These should be tested with consumers.
It added that advice should be defined as a personal recommendation where the adviser takes responsibility for ensuring that recommendation is suitable to the person’s needs. Guidance should be defined as information that can help people make their own decisions, but they are then responsible for those decisions.
Billy Mackay, marketing director at AJ Bell, said: “The current system is anything but simple. The various regulatory concepts or labels that govern financial advice are unnecessary and just create complexity. The FCA paper names five – basic advice, focused advice, independent advice, personal recommendation and regulated advice.
“These labels are nonsense and while they may not be used directly with consumers they create unnecessary complexity for the companies providing advice. Complexity nearly always equals cost and for some that is one of the major barriers to taking financial advice.”
“When things are complicated and difficult people often chose to do nothing. Simple definitions that make it clear to people what they will get out of advice and guidance would help them understand the value in each and hence improve their engagement with both of them.”
