In an effort to avoid offending fans of any other literary greats (and quite possibly the FCA), I’ll keep to the point this time. I’ll even resist the urge to draw one last parallel between Jane Austen’s Emma (which while often considered Austen’s most accomplished work, is distinguished by the fact that nothing of note actually happens) and Guidance Consultation 14/3 (GC 14/3).
OK, so I might have failed in the whole not-offending-the-FCA thing there but that’s the feeling which comes from reading GC14/3. It rounds up existing regulation in one place (which is very helpful but not news), offers some clarifications based on this and sets out the next steps. There is a lot of potential but this is just the start of the process and it could be this time next year before we see this come to fruition. Such is life and consultation papers.
So what did GC14/3 have to say for itself? Here are a few snippets we think are worth a mention.
The Duck Test – challenged
The FCA had previously intimated that whether or not advice has been given could be determined largely by the customer’s perception: ‘if it looks and feels like advice, it probably is advice’. GC14/3 qualifies that somewhat, stating that while the consumer’s perception is important, it will not always be correct and will not on its own determine whether advice has been given. Rather it’s more about external perception: would a ‘reasonable observer’ view the service as meeting the criteria of a personal recommendation? It’s still open to interpretation but might provide a little more comfort for providers.
Consumer perception – the human factor
As part of the GC14/3 work, the FCA commissioned consumer research. I already talked about this in a previous blog so won’t dwell but one point which is worth a mention is the importance of the medium by which information is communicated to consumers in the non-advised space. It seems most are pretty clear that non-advised services which are accessed online are just that. Non-advised. It’s when human interaction exists that scope for confusion appears to creep in alongside. While nearly all direct platforms offer telephone support to some extent, the majority guide you to FAQs or email. On reflection, that might not be a bad thing.
So where is the line between advice and not advice?
Clearly this deserves more than a few lines but since that’s all we have let’s see what we can do.
It’s not necessarily what is said that determines whether information crosses the line into investment advice as how it is presented. In essence, if there is an ‘opinion or judgement’ then it’s looking like advice. So, information in emails and mailings about fund launches, changes in manager and performance could be putting a toe over the line of advice if the information is presented in such a way as to ‘influence’ or ‘persuade’. A few terse meetings of comms teams could be underway by now.
Simplifying simplified advice
Some firms have apparently shelved plans for simplified advice services as, despite have the tech and enthusiasm, being unsure of or overestimating the requirements of FCA rules resulted in risk costs being factored in that rendered plans commercially non-viable. It was reported that, in some cases, direct investment services had been launched instead. Might we then see a surge of simplified advice offerings in this brave new world? There is certainly a market for it. There are good support tools on offer but for some, the option to get advice on an as-you-need-basis is the perfect compromise and, if it can be done cost effectively, is good for all concerned. The fact that advisory firms offering simplified advice cannot call themselves independent (as simplified is classed as restricted) could leave this field more open to platforms.
Providers need support from the FCA to avoid stepping over the advice line and anything which encourages consumers to engage with their investment is good news. The tech is there and we could see some innovative stuff coming to the market if it can be carefully untangled from regulatory uncertainty, given a gentle pat on the rump and sent on its way.