Advice vs guidance and the Consumer Investments Strategy

In September 2021 the FCA published its Consumer Investments Strategy focused on promoting consumer confidence as well as risk awareness when investing. This was followed by proposals for a Core Investment Advice regime in November 2022 aimed at increasing consumer access to simplified advice in relation to mainstream products within stocks and shares ISAs. The development of the regime proposals has now been rolled into a wider Advice Guidance Boundary Review (“the Review”) by the Treasury and FCA (see: Advice Guidance Boundary Review | FCA).

The FCA has received consistent feedback from firms that the proposals need to go further in examining the boundary between advice and guidance. Therese Chambers, Director of Consumer Investments at the FCA, has said that the Review aims to “work for the group that these products and services are intended for: consumers. It is imperative that this review delivers what consumers want and has consumer support. As such I want to reiterate that the ‘consumer voice’ is at the forefront of our thinking.”

Consumers have been left vulnerable to harms that might otherwise have been avoided if firms had provided more investment guidance. With approximately 4 million UK adults holding at least £10,000 mostly or entirely in cash (see the Financial Lives 2022 survey) and due to the pension freedoms introduced in 2015, consumers are in a position to take risk and face challenging and complex investment decisions.

The Review targets firms that have historically shied away from providing additional support to consumers in case this amounts to the provision of investment advice (specifically a “personal recommendation”) in breach of the general prohibition in s.19 FSMA.

Further pressure for the FCA to clarify the boundary between advice and guidance comes from the new Consumer Duty, which came into force on 31 July 2023 for new and existing products and services. This requires firms to help customers achieve their financial objectives and avoid causing foreseeable harms to retail investors - an obligation which some firms have found difficult to reconcile with the limits of their regulatory permissions. As Steven Cameron, Pensions Director at Aegon, has said: “there could be major benefits if those regulated firms who want to, were permitted to offer a new more personalised guidance service. This might allow them to support currently unreachable client groups, getting them on the road to good ‘Consumer Duty’ outcomes. And once these clients begin to appreciate the benefits, they’re much more likely to return to the adviser for full advice when they need it.”

The benefit of further FCA guidance is clear. It has now provided several examples that demonstrate the distinction between advice and guidance.

Investment advice does not include: 

• communications that are purely factual (i.e., they do not offer an opinion or value judgment) and do not suggest any course of action (for example, a firm providing its views on the general merits and potential disadvantages of different investments, without identifying the “right” option or stating that its view is based on information about that customer’s circumstances. An appropriately and fairly worded disclaimer could also help to prevent a firm from inadvertently marketing an investment as suitable for particular customers);
• communications that do not relate to a particular investment (for example, where a firm advises a customer on the differences between an ISA and a pension or explains how much they can withdraw from a pension in each year of their retirement. Another example would occur where a firm makes clear to the customer (where this is true and not unfair to them) that it has not asked them for sufficient information to determine whether a particular investment decision is suitable for them); or
• communications that are in the best interests of, or could avert harm for, all clients and are marketed to a general, as opposed to a targeted, audience (for example, details on how to prevent or mitigate investment losses, or earn more interest).

In a Consumer Duty-specific context, the following actions are again not counted as investment advice:

• explaining to consumers the disadvantages of holding excessive amounts of uninvested cash;
• outlining the risks of transferring a pension to a different provider (for example, losing protected tax-free cash) or withdrawing funds from a pension (for example, the impact on means-tested benefits);
• warning clients where they may be victims of a scam or fraud and encouraging customers to seek advice before making a withdrawal from an investment or pension;
• informing a customer of the short- and long-term potential risks of stopping or reducing their pension contributions due to cost-of-living pressures (for example, losing employer contributions or having insufficient funds at retirement); or
• recommending that a customer contact an adviser to review their holdings where a customer’s portfolio has not been re-balanced for some time.