FCA: “Personal recommendations” are the key advice boundary

Alex Sword


The Financial Services Forum

The FCA has outlined some preliminary findings from its review into the boundary between advice and guidance, as well as offering clarification on what counts as advice that firms can use to support customers more while the review is ongoing.

The regulator said that it views recommendations being personalised as the key boundary defining something as advice. It defines this as recommendations which are presented as suitable to that person or based on a consideration of that person’s circumstances.

This means that advice issued to the general public is excluded. For example, the FCA says a firm can publish a suggestion on its website for all customers to take a particular action that it thinks is in all of their best interests.

It can also, if asked by a customer, provide views on the general merits of a particular course of action as long as it doesn’t imply this is the right course of action for that particular customer or that its view is based on information about that customer’s circumstances.

The regulator also announced some preliminary findings from its review into the advice regime. One key theme was that changes to regulated advice alone would not be enough to solve the current challenges: there would be the need for flexible forms of support which can support people’s changing needs through their lifetime.

The regulator also noted that if firms were to provide support to more people, they would need to manage rather than eliminate risk, as this is a key driver of cost. The FCA saids the recently introduced Consumer Duty could be used to set expectations for the support firms provide to customers.


Why is the review taking place

The goal of the FCA is to make it easier for firms to offer support to consumers who would benefit from investing.

Currently ‘advice’, which provides consumers with specific recommendations on what products or services to take based on their circumstances and goals, can only be offered by firms or individuals that are authorised to do so by the FCA. This is distinguished from ‘guidance’, which offers general information without specific recommendations.

While this distinction is designed to protect consumers, it generally makes firms hesitant to offer any recommendations and means that financial advice remains a preserve of the wealthy.

From November 2022 to February 2023 the regulator consulted with industry on its initial proposals for a Core Investment Advice regime, seeking to broaden access to narrower-scoped financial advice.

Sarah Pritchard, Executive Director, Markets at the FCA, said: ‘It is vital that people get the help they need to make effective decisions – whether that be guidance or full financial advice from a qualified financial adviser. This is particularly so now, with the cost-of-living pressures.

“We want consumers to have greater confidence to invest, but to achieve that people need access to the right information to help them make decisions, understanding levels of risk. Our joint work with the Treasury in the months ahead will help to achieve that. In the meantime, and to see quicker improvements, we are taking steps now to give firms greater confidence to support consumers, pending broader reform, by clarifying the boundary of the current regime.’

Chris Hill, CEO of Hargreaves Lansdown and FCA Practitioner Panel member has said: ‘Data and digital tools mean there is now a lot more we can do to nudge consumers to better investing behaviours.  The clarity the FCA are bringing today on the advice boundary, and the commitment to review this, show that we can develop a new regime to ensure firms can do more to drive better consumer outcomes.’

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