As announced at Budget 2016, the government is consulting on amending the UK definition of financial advice. This will give firms the confidence to develop better and more tailored guidance services to help customers make informed financial decisions. Some consumers have relatively straightforward financial needs or small amounts to invest. For such consumers, the cost of full regulated advice may outweigh the benefits, or it may be uneconomic for firms to provide them with regulated advice. 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 main reason for the uncertainty is the fact that UK firms face two definitions of financial advice. The UK currently defines regulated financial advice as ‘advising on investments’ which is set out in the Regulated Activities Order (RAO). This definition is broader and less specific than the definition used in the Markets in Financial Instruments Directive (MiFID), which is based upon a firm giving a customer a personal recommendation. FAMR found that the MiFID definition is clearer for firms and consumers and is also much easier for firms to build into their compliance processes. 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.