In September 2016, the government published a consultation on amending the definition of financial advice. This followed the Financial Advice Market Review’s (FAMR) finding that there is a growing trend towards consumers making and executing their own financial decisions, and that for consumers with relatively straightforward needs or small amounts to invest, the cost of regulated advice may outweigh the benefits.
The FAMR suggested that such individuals would benefit from high quality and more specialised and detailed guidance services. As a result of the lack of clarity as to the point at which general consumer support becomes regulated advice, the FAMR found that firms were limiting the amount of guidance being given to consumers for fear of inadvertently giving regulated advice without meeting the relevant regulatory requirements.
The government proposed to amend the definition of regulated advice in Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) to bring it into line with the EU definition set out in the Markets in Financial Instruments Directive (MiFD).
Having considered the responses to the consultation, the government has decided to change the definition of financial advice for regulated firms. Regulated firms will therefore only be giving financial advice where they provide a personal recommendation. This new definition will come into effect on 3 January 2018. The effect of this change is that regulated firms will be able to provide more advanced guidance services, which would previously have been caught by the RAO definition of advice as “advising on investments”, without having to comply with the higher regulatory requirements associated with regulated advice. Regulated firms will only be deemed to be giving financial advice where they provide a personal recommendation, and will not require authorisation to carry out activities under Article 53 of the RAO unless they are making such a recommendation. Unregulated firms will still be considered to be giving advice without proper authorisation when they “advise on investments” as set out in the RAO.
The amendment will affect the insurance market when the Insurance Distribution Directive takes effect in February 2018.