Published: 27th September 2016

Of relevance to:
Investment advisory firms; all firms undertaking ‘advising on investments’


The publication in March of the ‘Financial Advice Market Review’ (“FAMR”) was the final report on this joint FCA and HM Treasury initiative – Regulatory Roundup 74 provided an overview.

As commented then, one of the recommendations was to consider amending the definition of regulated advice so as to be in line with the MiFID definition.

As we know, the UK regulated activity of ‘advising on investments’ which appears on the Part 4A Permission of many firms – and which arises from article 53 of the Regulated Activities Order (RAO) – does not map precisely to the MiFID investment service of ‘investment advice’.  This is because the definition of the latter relates only to the provision of a personal recommendation to a client, whereas the UK regulated activity has no such restriction.  If the proposal is carried through then only advice which makes a personal recommendation would be regulated in the UK.

HM Treasury has now issued an open consultation ‘Amending the definition of financial advice: consultation’.

The thinking behind this arises from the FAMR finding that, setting aside the ‘traditional’ client/advisor relationship, many consumers with relatively straightforward needs or limited amounts for investment would benefit from high quality and more specialised and detailed guidance rather than ‘advice’.  However, it was found that firms were reluctant to offer such services because of uncertainty over the boundaries between (non-regulated) ‘guidance’ and (regulated) ‘advice’.

Redefining ‘advice’ as being a ‘personal recommendation’ would, it was felt, allow firms to support customer decision making.

Examples of areas where firms currently have concerns given in the consultation – and hence are reluctant to be involved in – includes providing information on the risk profile of the funds available within customers’ ISAs; highlighting that a customer has never increased their pension payments despite receiving a pay increase; and contacting customers to remind them that they have not used their ISA allowance.

The revised text for article 53 of the RAO can be found in Annex A of the consultation.

Comments are invited by 15 November 2016.

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