“A simple and clear definition of what constitutes financial advice has been needed for a long time. Consumers do not understand the difference between ‘advice’ and ‘guidance’ or, crucially, the protection they get under each route. Unfortunately, these terms are often used interchangeably, notably by the then Chancellor in his 2014 Budget speech! So it's not about the labels, it's about consumer understanding.
“Royal London believes the distinction between ‘you have received a personal recommendation from...’ and ‘Do you understand that this information has been given for guidance only and does NOT constitute a personal recommendation’, is one that the public could understand and relate to. Further information could then be provided regarding the specific consumer protection for each particular option.
“For advisers, HM Treasury suggests the advantages are more protection against future claims on the advice that has been given, and based on this, the opportunity to then offer more lower-cost guidance services. In reality, existing advice firms will probably not change the way they do business too much as a result of the revised definitions but they can be clearer about the value of the service they are delivering. We also fully agree with adviser comments that any definition that is agreed MUST be adopted universally, by both the regulators and the Financial Ombudsman Service.
“There still remains a concern that some firms may try to exploit the fact that some higher-risk investments are not regulated products and won't be covered; and that the definition of a ‘personal’, as opposed to a ‘specified’ category or group of people, could also be an issue. These potential problems are however already in existence and the proposed new definition would not seem to increase the risk. We suggest further measures could be taken separately from this proposition to address them.
“Finally, it does not appear that the issue of specialist advice is addressed in this consultation. Just as consumers can be confused by ‘advice’ and ‘guidance’, we believe there is a similar issue with the use of ‘independent’ and ‘restricted’. Royal London believes there should be a clear distinction between those advisers who are restricted because they are influenced by ties to product providers, i.e. not ‘whole of market’ and those who are restricted because they are a specialist rather than a general practitioner. Dealing with a specialist, in any field, can deliver a very positive outcome for consumers and should not appear to be of less value than holistic ‘whole of market’ advice. It is simply different."
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