How low can guidance go?

without advice

The FCA have published an important document that sets out to define where guidance ends and advice begins. Thankfully , it’s one you can read without feeling guilty that you aren’t going to answer 150 consultation questions!

The FCA has also published feedback from advisers as part of this paper which will hereby be known by the FCA as FG 15/1 and on this blog as ‘finalised guidance”.



Knowing your boundaries

In the Executive Summary we learn that the FCA

“know that firms want greater clarity about how they can help customers to make informed decisions without stepping over the boundary into providing a personal recommendation”.

This is certainly true of my firm, First Actuarial which acts for many employers keen to help staff take prudent decisions on their finances that will make them more productive when they work and more comfortable to stop working as they get older.

So what is defined as advice?

MiFID investment advice involves the provision of personal recommendations to a customer, either upon the customer’s request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments.

They give as examples

  •   Advice to a customer to buy shares in ABC plc or to sell Treasury 10% 2014 stock is advice about a specific investment and so is regulated.
  •   Advice to buy shares in the oil sector or shares with exposure to a particular country is generic advice because it does not relate to a specific investment and is not regulated.
  •   Advice on whether to buy shares rather than debt is generic advice and is not regulated.
  •   General advice about financial planning is generic advice and is not regulated.
  •   Guiding someone through a decision tree where they make their own decision,would not normally be advising on investments

“Generally speaking, giving someone information and nothing more, does not involve giving regulated advice’.


Applying those boundaries

The paper goes on to apply these principles to the changing behaviours of the people who take advice

Research by Mintel (April 2014) shows that around 40% of customers currently prefer to receive personal recommendations face-to-face rather than online, although 24% would be willing to receive personal recommendations online.

An example is given and the FCA conclude

the ability of the customer to make their own choices about the features they are looking for and the absence of apparent judgement about which features or products they should choose, would make it unlikely that the service offered would be viewed as MiFID investment advice (i.e. a personal recommendation).

This, in my opinion, is the key statement. I have made bold “absence of apparent judgement” as this phrase underpins what we consider “integrity and independence” to be all about.

Removing bias , so that information is distilled to its absolute relevancy, the circumstances of the individual taking the decision, requires great skill and knowledge of products and how they work, but it does not pre-suppose a judgement of what’s right for an individual.

In the final call, guidance stops short of being an absolute recommendation because it does not make that call.

Project Innovate

Of great interest, is the FCA’s offer to test on-line decision making tools using its Project Innovate  service.

As I understand it, an advisory firm can submit to the FCA data for evaluation from a test sample of clients who receive information  in a traditional way (fact to face) and then receive the same information self-served via the internet.

To take a local example.

  1. An employer asks an adviser for help in choosing a workplace pension , a market review is purchased and delivered face to face which leads to their making a decision. This process costs £2,500
  2. The same employer asks a comparison website for help in choosing a workplace pension , a decision is taken online without any manual intervention. This process costs £500.

I would hope that Project Innovate would help establish

  1. Under the FCA’s new definitions, which of these two approaches would be deemed advice, which guidance.
  2. Whether the employer in example one had materially better information/guidance/advice than in example two
  3. How the FCA could determine whether either option was delivered with an absence of apparent judgement.

(I should point out that in the context of FCA’s regulated activities, whether it is advice or guidance, what is given to employers is not deemed a regulated activity).

workplace advice

Does the delivery mechanism make a difference?

I am not a behavioural psychologist. But I believe from advising face to face and being involved in providing online decision tools, that where people use the online tools, they are able to take decisions without considering the judgement of third parties.

Provided that they take these decisions in the full possession of the relevant facts, my view is that they take decisions with greater objectivity and that the outcomes of those decisions are

  1. more likely to be owned by the decision maker
  2. more likely to be beneficial to the decision maker.

These are bold judgements on my part. They are not tested and if I am able to convince the FCA that we can use Project Innovate to test my theory , I will endeavour to assemble a test group of clients to form a statistically valid sample for these two approaches to be set against each other.

Critical to the FCA’s thinking is that the circumstances of the client are vital. Simple decision making involving a relatively small number of inputs may favour Pension PlayPen, more complex decisions may favour First Actuarial. I would certainly hope that this is the case as the price differential suggests that there needs to be considerably more value from the manual interventions involved in the First Actuarial service.


Doing away with shades of grey

For me, the paper makes sense. The shades of grey that represent simplified advice and other intermediary definitions serve only to muddy clear water. If we can define advice as MIFID do and be as clear about what sits on the guidance side and what on the advice side as the FCA are in this paper, then those involved in delivering guidance will know the point of handover, those delivering advice will know their value.

Clarity on how advice and guidance work in the context of the new media is also valuable.

Most valuable of all is the insight that the “absence of apparent judgement” is the mark of guidance.

The nature of human interactions makes it hard to give face to face guidance without the body language and tone of voice giving unwanted bias to the guidance given. To a lesser extent this is true on the phone.

The digital information that is available from organisations as different  as Nutmeg and Pension PlayPen needs to be tested by Project Innovate. We need to get better at understanding how decisions are being taken, whether choice is sufficiently informed and how consumers can be confident they are getting value for money.

But this paper, the accompanying feedback and the launch of Project Innovate encourage me that we are on the way to understanding how low we can go with guidance.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, FCA, pension playpen, pensions, Pensions Regulator and tagged , , , , , , , , , . Bookmark the permalink.

3 Responses to How low can guidance go?

  1. SHANE says:


  2. Daniel says:

    You have however missed the fact that “absence of apparent judgement” is only what takes you outside of MiFID. The test for “regulated advice” is less clear – project innovate firms will still have to hold an “advising permission”

  3. Brian Gannon says:

    An excellent academic piece, however the more I read the more I am reminded of my economics degree, where “economic man” makes logical decisions based on relevant information. I think that there are millions of people who are perfectly capable of making decisions based on receiving information, understanding it, applying it to their own situation and then taking an appropriate decision. However, there are also many millions more who are not capable of doing this unassisted. The UK has got itself in a terrible regulatory mess where regulators do the work that should be done by the law. The law should be dealing with people who fraudulently give advice and recommendations which clearly do not benefit the recipient of advice where that advice is then acted on and benefits the “adviser” rather than the recipient. The law for example should prosecute and imprison those who rigged LIBOR rates, and should prosecute anyone who deliberately lies to people in order to benefit him or herself financially. But this does not happen. So we then get this total mess where regulation seeks to do what the law will not. And so they try to define what is advice and what is guidance. And yet what really matters is the integrity of the person giving advice or guidance, and also their knowledge of both the recipient and the subject on which they are advising/guiding. Because there is so much regulation in the area of regulated “advice” it is not possible to give clients what they want at a low enough cost for it to be of added value. There is a whole cottage industry of compliance advisers and compliance consultants who add NOTHING of value to the client. They seem to be in existence to protect the advisers and the companies they work for by training and cajoling advisers to write reams of justification for what they are and are not recommending. This all needs paying for. And the client pays. The paradox is that UK public are paying a massive premium to be protected and are therefore suffering anyway to pay for the regulators costs. I contribute to and read countless articles about the semantics of guidance versus advice. What a sorry state that we all (including me) spend so much energy debating what is and isn’t advice, and what is and isn’t regulated advice. Regulation has created a schism between what people want and what they get. People want advice, they do not want to have to make decisions about finances themselves. This is the key thing to understand, it DOES NOT MATTER if people can make their own decisions, because THEY DO NOT WANT TO. So as a result people who do not receive or seek advice do not make decisions about their financial futures, and end up going to TPAS or the CAB for what will be a watered down version of what they need. There will be a take up for this guidance guarantee service for sure, but it will be interesting to see how many people then take decisions based on the guidance they have received. Thing is of course, we will then have to pay millions of pounds for the cost of surveys to find out this answer. We have rubbish regulation and rubbish law in the area of financial services, and this creates the silliness that leads to this kind of debate.

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