When the Financial Conduct Authority sets out to be helpful, as its latest Financial Advice Market Review does this week, it is hard to know whether to laugh or cry. The strategic problem is that its own regulatory approach is causing the market which it is supposed to protect and grow, to fail. The strategic solution would be to abolish the FCA but it is Osborne’s baby and he will not do that. So the new FAMR shows the advisers and their clients how to do their business in another market beyond the FCA’s clutches. It is all a bit subtle: financial “advice” is regulated but financial “guidance” is not. The government’s Money Advice Service, for example, is not regulated no matter what rubbish it may advise. The FCA wants the Treasury to make the distinction more explicit and advisers to understand how they can exploit that. Advisers should be “navigating the boundary between providing helpful guidance based on a customer’s circumstance (such as a financial ‘health check’ prompting customers to think about their financial needs and priorities) and [not] straying into an implicit personal recommendation.” (p.28). It is OK to talk about X (must be nameless, wink, wink, nudge, nudge) who has very similar circumstances and wisely adopted course Y provided one does not actually recommend Y to the client.
And the FCA will now offer “new guidance to support firms who wish to offer 'streamlined advice' on a limited range of consumer needs." This should include, it says, "a series of illustrative case studies highlighting the main considerations firms need to take into account when developing such models.” “Streamlined” advice is, of course, guidance, not advice. (p.35). Terminology is a problem as the FCA also refers to this category as ‘simplified’ or ‘focused’ or ‘basic’ advice. “Nudges” and “rules of thumb,” in case you were wondering, are guidance, not advice.
The FCA makes the distinction that, following guidance, it is the client who decides the course of investment whereas, according to them, the client always follows advice. This is a non-difference as the decisions are always made by the client in both cases.
One should not mock as there is a genuine attempt, in all the muddle, to shift finance advice from regulated bureaucracy to a mass market. The FCA is excited by the idea of “robo-advice,” allowing the consumer to provide her details and options to her tablet, or whatever, and receive an investment plan back. Banks and the other big players, who can see competitive advantage over the independent professionals, are equally excited. And because banks’ computers are never wrong, this will be “guidance,” not “advice.” Importantly, it could become value for money for the consumers currently locked out by the FCA.