A consultation has been launched by the Government this week, following on from recommendations in the Financial Advice Market Review, and Budget 2016 announcements.
The key proposal involves amending the definition of financial advice to bring it in line with wording used in rules derived from the European Union.
Officials have suggested altering the words in article 53 of the Regulated Activities Order to reflect the text set out in MiFID, an EU directive which harmonises regulation for investment services across member states.
Changes to the definition of advice will give firms the “confidence to develop better and more tailored guidance services to help customers make informed financial decisions”, the Treasury said.
Steve Patterson, managing director of Intelligent Pensions, said: “It certainly does nothing to clarify the difference between guidance and advice. It’s high time this was sorted out by the regulatory authorities.”
He said: “This might help firms in promoting investments by ensuring that as long as they don’t make any assessment of, or comment on, the suitability of the investment for a potential investor, their promotional activities won’t be subject to the constraints and rigours of a regulated advice process, but I can’t see how it helps the public at large.”
The consultation boils down to stating that to be regulated advice, the recommendation must be presented as suitable for the person to whom it is made or based on the investor’s circumstances, he believes, rather than being considered regulated even where nothing was said about the suitability of the recommendation for a particular individual, as previously.
Charles McCready, director at TISA, said: “There is currently a significant gap in the provision of guidance to the mass market, and greater clarification around advice would empower and motivate financial services to provide their customers with information that could help them both plan as well as make better informed financial decisions.
“The consultation is a good step in the right direction and opens the way to defining what should be included in a guidance framework and developing best practice that will help consumers make realistic plans for their financial future
A Treasury statement read: “Currently, firms are reluctant to offer guidance services to these consumers, increasing the risk of them making poor investment decisions on their own. A key reason for this reluctance is uncertainty around what constitutes regulated advice and what does not.
“The consultation proposes to amend the wording in article 53 of the RAO to reflect the text set out in MiFID, so that consumers only receive “regulated advice” when they are offered a personal recommendation for a specific product.”
The consultation ends on 15 November.