Consumer Duty shaping the boundaries for advice


On 9th December 2022, the Chancellor announced the ‘Edinburgh Reforms’ as part of a multi-step strategy to promote growth in the UK by removing cumbersome EU laws and directives that have been retained post-Brexit. It is the next stage of the vision for the financial services sector outlined by the government during a speech by now Prime Minister, Rishi Sunak, at Mansion House in 2021.

The reforms are intended to create a more streamlined, adaptable regulatory framework that can react quickly to arising issues and themes. One element of the reforms is a review of the ‘Advice Guidance Boundary’, jointly conducted between the FCA and the Treasury.

What is the advice guidance boundary?

The advice guidance boundary is about how much advice and support can be given to consumers without it constituting a ‘personal recommendation’. A personal recommendation is any investment advice given to a customer (or prospective customer) that is made based on its suitability for the client or the client’s own personal circumstances. If the advice is issued exclusively to the public as general guidance, this would not constitute a personal recommendation.

The FCA believes that many firms are not offering sufficient support to consumers, as they may be overly worried about the level of support being misconstrued as making a recommendation

The FCA believes that many firms are not offering sufficient support to consumers, as they may be overly worried about the level of support being misconstrued as making a recommendation. As a result, the review of the advice guidance boundary is a long-term plan intended to help firms better understand the current framework, allowing them to operate closer to the boundary and provide better aid to those in need. They also hope the review will identify ways to improve the current framework and make the responsibilities of investment firms clearer.

The Review

Beginning with feedback from consumers and those working within the industry, the review is meant to entrench the consumer’s right to receive help to make informed financial decisions, at an affordable cost, whenever they need it. The FCA have stated that they expect the review to ‘leverage the Consumer Duty [regulations], to set clear expectations for the support that firms provide their customers and ensure that consumer protection remains at the core of any future regime’.

The first aim is to clarify the advice guidance boundary for investment firms. The FCA has published some examples of what would constitute advice and what help could be offered without any personalisation. One example of providing support without a recommendation is when firms point clients towards tools that can help with personal budgeting, it could also be answering simple queries like the difference between ISA’s and a pension. The FCA additionally highlighted more general advice like explaining the potentially negative consequences of holding too much cash or the overall risks associated with pension transfers.

If firms are reluctant to provide this kind of generalised advice, it means there are many consumers who will struggle to easily access the information they require to invest with confidence. This is one of the key elements of the government’s plans for the financial services sector as outlined by the ‘Consumer Investments Strategy’ set out in September 2021. The government wishes to create an environment where clients can identify investments that are suitable for their needs and appropriate for their personal attitude to risk. Consumers should have access to these investments and should be provided with the advice needed to build confidence and ensure they understand of the associated risks.

In support of these aims, the government announced plans to ‘broaden access to narrower-scoped financial advice’ through the Core Investment Advice Regime in November 2022. Building on the Consumer Investments Strategy, the government is trying to create an industry that facilitates personal investment and ensures that consumers are maximising their existing assets, potentially unlocking huge growth potential.

This resulted in a Consultation Paper being released that showed the extent of the problem with reference to surveys confirming that many consumers who currently hold assets in cash, would greatly benefit from moving these assets into a different investment product, in line with their own attitude to risk of course.

The report identified supply and demand issues as being a key driver of this problem. On the supply end, many firms are concerned with the cost element involved in providing advice to mass-market clients with smaller levels of assets as well as the risk of mis-selling if the advice is deemed unsuitable. On the demand side, there is a clear disparity between high-net-worth clients and less wealthy clients, with the latter being far less likely to seek support in financial decisions.

The ‘Advice Guidance Boundary Review’ is a broader assessment of the advice framework which will now incorporate the proposals of the Core Investment Advice Regime as well as implementing some of the recommendations from it. The hope is by incorporating one into the other, more substantial change can be achieved with a many firms wanting the regulatory guidance to go deeper than the Core Investment Advice regime originally intended.

How does Consumer Duty affect the boundary?

The benefits of these initiatives to the government are hopefully more private investment and therefore more tax revenue as well as an overall more buoyant economy. However, the proposals are aimed at the firms providing the advice or guidance, who are now governed by the Consumer Duty regulations.

One of the pillars of Consumer Duty is ensuring good outcomes for consumers at a fair price, which should now underpin all actions taken by firms. The consideration for anyone operating in this industry now is whether the support they are providing will result in a positive outcome for the client. Any client who has excessive cash holdings, could be seen as causing detriment to their own financial situation if they have not received ‘guidance’ on the potential alternatives.

When consumers with cash holdings engage with firms, providing little to no support for fear of over-stepping the advice guidance boundary will almost certainly result in a negative outcome for those consumers. Firms have a responsibility now to ensure that they do all they can to prevent this and so operating closer to the advice boundary becomes paramount.

In the Core Investment Advice Regime Consultation Paper, the FCA found that those who have received investment advice rather than guidance, are more likely to have a varied investment portfolio. However, it would be impossible to identify how many consumers have received guidance that falls well short of the advice boundary but who could have benefitted from more in-depth support. Failing to offer this support must now be seen as a breach of Consumer Duty regulations.

Plans for the future

By focusing on the provision of adequate advice, guidance or support, the government and more specifically the FCA, are doing their utmost to ensure consumers are given every opportunity to make informed financial decisions. Having vast amounts of cash stagnating in bank accounts across the country restricts the economy’s growth and ultimately leaves consumers unable to maximise their hard-earned assets, therefore limiting their standard of living. The importance of making good financial decisions has become even more vital when considering the recent cost of living crisis and high inflation, two factors already impacting standards of living across the country.

The FCA have acknowledged that the current framework does not do enough to give firms the clarity they need to address these issues and ensure good outcomes. The review shows the FCA’s willingness to tackle these problems head on and should allow for a more transparent, more flexible approach.

Chris Hill, CEO of Hargreaves Lansdown commented:

‘Data and digital tools mean there is now a lot more we can do to nudge consumers to better investing behaviours.  The clarity the FCA are bringing today on the advice boundary, and the commitment to review this, show that we can develop a new regime to ensure firms can do more to drive better consumer outcomes.’

Whether it is through further publications of good practice or further clarity on firms’ responsibilities, the advice guidance boundary will continue to be redefined. The onus is on all within the industry to operate as close to the boundary as possible to ensure clients are not left without adequate support, whichever form that may take.


About Author

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Philip Masey from Wizard Learning. Having worked in financial services for the past 12 years, Philip is an experienced Mortgage, Protection and Equity Release Advisor and also one of the lead authors at Wizard Learning. Alongside their online courses, Wizard Learning offer a monthly CPD package and now with an expanded team, they aim to provide a well-rounded, informative monthly course to help you develop your knowledge in an easy to understand format

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