Written by Adam Jones, Guest Blogger on Thursday 19 March 2015
So it arrived to little aplomb and much muttering from around the industry, a new year’s gift from the FCA; the publication of FG15/1: Retail Investment Advice, Clarifying the boundaries and exploring the barriers to market development. The responses from the industry were exactly as I would expect… “We don’t have any more clarity”, “We don’t understand what classes as advice and what doesn’t” and “We can’t offer the service we want without it being classed as advice”.
Now don’t get me wrong, I don’t think this topic is easy to digest. I started drawing out the forms of advice mentioned (generic, simplified, focused, full) and then followed through various rule books for the references cited in the paper (COBS, PRIN, MiFID and FSMA to name a few). After four A3 pages, I gave up.
The real crux of the matter, when you strip away all of the other layers of archaic regulation, is whether you as a firm are offering a personal recommendation to an investor. If you are, there is a damn good chance you are going to be in the realms of offering advice.
The section on implicit recommendations should leave little doubt. “For a recommendation to be ‘implicit’, it may be presented with a statement / scenario stating ‘people like you buy this product’ or, ‘this is what I would do if I were you’. Such a statement gives the customer the impression that the product would be suitable for them.”
While I could spend a long time arguing the toss over whether this should be treated as a recommendation, implicit or otherwise, it is redundant, because the FCA thinks it should be, and they have left little wiggle room in there. The rules are clear, if heavy handed. If you start influencing the customer outside the remit of pure data provision, sooner or later, in your quest to be helpful, you are going to end up giving advice.
I can’t help but think much of the bleating in response to the paper from product providers is unrealistic wishful thinking. They want the best of both worlds, offering clients personal recommendations (via engaging and interesting propositions) without any of the risk of litigation and liability which goes with that. Providers I speak to are often pushing the boundaries on what they can do without advising (in the FCA’s eyes) and not looking at what is best for customer outcomes (which in many cases, would be a high quality delivery of automated advice). One only need scan across to the United States and take a look at services like Betterment, Schwab and InvestSMART to see how customers can be supported by automated services.
Following FG15-1, it is clear to me, that if a provider wants to offer a D2C proposition for their clients which is personal, insightful, relevant or most other positive adjective you care to think of, they are probably going to be offering advice. Forward thinking providers are going to have to prepare themselves for all of the risks that come with it, or back away and be a data vendor which also happens to sell products.