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View the article online at http://citywire.co.uk/wealth-manager/article/a761490

FCA clarifies advice definition as it launches consultation

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

-          The recommendation is presented as suitable for the person

-          The recommendation must relate to taking certain steps in respect of a particular investment

The FCA noted that 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.

Suitability

If a personal recommendation is given, no matter what form, the FCA stressed suitability requirements and the need for firms to obtain information from the client to understand they have a 'reasonable basis' to believe the following:

- The recommendation meets their objectives;

-The client can financially bear any related investment risk consistent with their investment objectives;

- They have the necessary experience and knowledge to understand the risks involved.

Meeting suitability requirements is necessary even if a personal recommendation is provided through a simplified advice process.

'However, it is important to note that the suitability requirement is flexible and allows firms to develop a simplified process dependent on the product and type of customer for which it is intended. For example, the suitability test is qualified by reference to ‘the nature and extent of the service provided’, and the information that must obtained is qualified by the condition ‘where relevant’. The information that it is ’necessary’ for a firm to obtain will vary from cases to case. The more complex and high risk the product, the higher the threshold of required information,' the FCA said. 

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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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Shimples...

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."

Etc.

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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