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FCA clarifies advice definition as it launches consultation

by Danielle Levy on Jul 11, 2014 at 13:16

FCA clarifies advice definition as it launches consultation

The FCA has sought to clarify the boundaries between different investment advice models as it launches a guidance consultation.

The regulator found that firms are being clear on the requirements for full advice and execution-only business post the introduction of the retail distribution review (RDR) in January 2013. However, they are struggling to navigate the options in between full advice and execution-only. For example, simplified advice or limited advice services and sales where personal recommendations are not made but involve guiding the client in some way.

The FCA said that for advice to be regulated at all, it must relate to a specific investment and must be given to the person in their capacity as an investor or potential investor, or as an agent for an investor or potential investor. It must also relate to the merits of them buying, selling, subscribing for or underwriting the investment.

If it does not have all of the following characteristics then it is generic advice and is not regulated, the FCA concluded, citing the following examples:

- Advice to a customer to buy shares in ABC plc or to sell Treasury 10% 2014 stock is advice about a specific investment and so is regulated.

-Advice to buy shares in the oil sector or shares with exposure to a particular country is generic advice because it does not relate to a specific investment.

-Advice on whether to buy shares rather than debt is generic advice and is not regulated.

-General advice about financial planning is generic advice and is not regulated.

-Guiding someone through a decision tree where they make their own decision, would not normally be advising on investments.

Boundary between information and advice

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5 comments so far. Why not have your say?

Neil Shillito

Jul 11, 2014 at 13:29

Very, very clear. The ambulance-chasers are going to clean up.

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Philip Milton

Jul 11, 2014 at 13:33

That's interesting - as it suggests that if it is NOT regulated then you don't need to be qualified to provide it as it's not advice. Additionally, if it's not REGULATED then someone can't lodge a complaint with the FOS (or I shoudl say it's outside of the FOS' jurisdiction)!

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ray silvester

Jul 11, 2014 at 13:56

If an adviser (is that the right term?) is not authorised then he/she will be at great risk of giving regulated advice illegally. So surely all advisers/salespeople should be authorised, full stop.

Furthermore if an advisor/salesperson contacts the client then it is most likely he/she is going to give regulated advice. So anyone contacting a client should be authorised and shouldn't be allowed to contact the client if unauthorised.

If a client contacts the investment adviser then it is likely that the adviser could be unauthorised and give only factual advice and not regulated advice.

It all seems quite simple to me but unfortunately where there is money involved the rules & regulations take second place.

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Jul 11, 2014 at 13:56

"the circumstances in which information is provided can make it regulated advice."

"a firm may provide a recommendation in the form of an investment bulletin that is not targeted at individual customers without it constituting a personal recommendation and therefore triggering the suitability requirements. However, this could still amount to regulated advice."


Therein lies the real problem - lack of certainty for regulated firms.

For unregulated firms it's much worse for the client. If the firm strays into regulated advice there is no PI, no FOS and no FSCS.

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ray silvester

Jul 11, 2014 at 14:00

Or, as the article puts it:

...low cost models designed to meet this need deliver good outcomes for clients in a way that is also commercially viable for those who supply the products and services

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