HM Treasury is to amend the UK definition of financial advice for regulated firms from 3 January 2018.
The government will amend the definition of financial advice for regulated firms so that advice is only given when providing a personal recommendation.
The current wider definition for financial advice that is stated in the Regulated Activities Order (RAO) will remain in place for unregulated firms. This defines advice as ‘advising on investments’.
The change will mean that most regulated firms will be exempt from the need to hold permissions to advise on investments unless they are providing a personal recommendation.
The amendment aims to allow regulated firms to provide more advanced guidance services, without being subject to the higher regulatory requirements associated with regulated advice or being impeded by the RAO definition of advice.
The change follows a recommendation from the Financial Advice Market Review (FAMR) and the government's Amending the definition of financial advice consultation, which ran between 20 September 2016 and 15 November 2016.
The 12-week consultation, which received 63 responses, looked to explore how the definition of financial advice could be streamlined and simplified, to remove uncertainty around what constitutes regulated advice and what constitutes guidance.
In the consultation, the government proposed changing the wording in Article 53 of the RAO so that it is aligned with how financial advice is described in the Markets in Financial Instruments Directive (Mifid). The RAO definition is broader than Mifid, which requires advice to be of a personal nature.
Steven Cameron, pensions director at Aegon, said: “We welcome the Treasury’s announcement that in future, firms will be giving regulated advice and be subject to the associated higher FCA [Financial Conduct Authority] requirements only where they are providing a personal recommendation. This brings the definition in line with MiFID II and is a key step in advancing the aims of the Financial Advice Market Review. We hope Treasury, FCA and the Financial Advice Working Group will now renew their focus on delivering the remainder of the 24 recommendations to help plug the advice gap.
“The Treasury decision also paves the way for the FCA to advance its work on clarifying what regulated firms can be offered under the ‘guidance’ banner. We also await insights into proposals from the Financial Advice Working Group on new labels for ‘advice’ and ‘guidance’ that will make it easier for customers to differentiate between these.”
