The Treasury says there was a strong consensus during the Financial Advice Market Review that bringing the UK definition of advice in line with the MiFID definition of advice would allow firms to better help consumers.
Firms who responded to the FAMR consultation stated that they would be more confident in providing information to support customer decision making, such as the merits and risks associated with particular investments. They also said that the MiFID definition of advice is much easier to build into their compliance processes.
The government said under the new definition firms should have the confidence, for example, to contact customers to let them know that they have not used their ISA allowance in a given tax year; provide information on the risk profile of the funds available within their stocks and shares ISA; or highlight that a customer had never increased their pension payments.
The government first published a consultation in September 2016, and the majority of respondents agreed that the proposed definition was simpler for firms, and supported the change.
The new definition will come into effect on 3 January 2018 to allow the FCA to consult on and publish new guidance and to align the change with the implementation of the MiFID II.
The Treasury says regulated firms will now be able to provide more advanced guidance services, that would previously have been caught by the RAO definition of advice as “advising on investments”, without being subject to the higher regulatory requirements associated with regulated advice.
Unregulated firms will not be able to provide these more detailed and tailored guidance services to mitigate the risk of consumers being scammed.
A number of respondents had expressed concerns that using a narrower definition could allow more fraudsters to operate in this space. Specifically, they were concerned that fraudsters would attempt to deliver ‘advice’ that stopped short of a personal recommendation, but nevertheless is intended to persuade an individual to purchase risky investment products.
The government says it acknowledges these concerns and will "take mitigating action against the risks posed to consumers".
In the consultation response, the government said: "Regulated firms who must abide by the FCA’s rules and principles benefit from the new advice definition, whereas unregulated firms will not be able to move beyond providing factual information about products into providing detailed guidance on the merits and disadvantages of investment products without being regulated. If they are found to have done so, the FCA will be able to take action against them. This will ensure that consumers are protected from the risks."
