"This clarity will allow adviser firms to consider new opportunities to offer cost-effective guidance services to a wider range of customers."
The amended definition will mean that only financial advice which makes a personal recommendation is regulated.
This is in line with the much clearer definition set out in MiFID and aims to give firms the confidence to develop better and more tailored guidance services to help customers make informed financial decisions.
The government says that for consumers who have relatively straightforward financial needs or small amounts to invest, the cost of full regulated advice may outweigh the benefits, or it may be uneconomic for firms to provide them with regulated advice.
It believes that firms are reluctant to offer guidance services to these consumers due to uncertainty around what constitutes regulated advice and what does not.
FAMR found that the MiFID definition is clearer for firms and consumers and is also much easier for firms to build into their compliance processes.
Citing benefits for firms, the Treasury says that those who currently carry out activities covered by both definitions of financial advice will see savings from less rigorous compliance monitoring to avoid crossing the boundary from guidance to advice when offering help to consumers.
The Treasury consultation explains: "The current uncertainty around the advice boundary means firms need to implement processes to ensure their guidance services do not cross the boundary into advice, often including a ‘second line of defence team’ to prevent a breach of current regulation. With a clearer distinction between the two activities, firms will be able to allocate less time and resource to their compliance mechanisms. The majority of savings are likely to come from staff time and external costs such as legal opinions.
"The second benefit relates to opportunity cost. Due to the current uncertainty, firms are deliberately limiting their guidance services to remain well short of the regulated advice boundary. This creates an opportunity cost in terms of customers not served and revenue forgone. After the change, firms will be able to give more tailored information and guidance to better serve customers without incurring additional regulatory costs."
Steven Cameron, Pensions Director at Aegon, commented: “We’re pleased to see the Treasury advancing this important part of the Financial Advice Market Review. It makes sense to define regulated advice as including a personal recommendation, in line with the existing MiFID definition. We hope that the FCA will continue to work with advisers to make crystal clear the division between guidance and regulated advice.
“This clarity will allow adviser firms to consider new opportunities to offer cost-effective guidance services to a wider range of customers.
“Looking at another strand of FAMR, we hope the Treasury will relax its stance and allow the new Pensions Advice Allowance to be used towards not just regulated advice but also guidance where offered by a regulated firm.”
